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Remsons International Conference

On

Innovative Business Practices for

Achieving Excellence in Globalised Competitive Environment

Organised on

18 February, 2017

Vol. 3, February 2017 ISBN 978-93-5196-952-5

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INAUGURAL SPEECH

Mr Krishna Kejriwal (MD, Remsons Industries)

I am deeply pleased as well as privileged & honoured to be present here this

morning for the inaugural session of the 4th Remsons International Research

Conference on Innovative Business Practices for Achieving Excellence in

Globalised Competitive Environment.

Friends, I stand before you today as a representative of our company

Remsons Industries Ltd, a company which since 1968 has been in the

forefront of manufacturing components for the automobile industry. This is

where I started my career almost 4 and a half decades earlier and hence my

knowledge is mostly restricted to the automobile sector. Unfortunately I

have not had the benefit of expanding my vision & knowledge in an excellent

institute as represented by The Durgadevi Saraf Institute of Management

Studies and hence have remained what I would term as a “Nuts & Bolts”

man.

To understand the challenges faced by companies in today’s environment it

is imperative to visualize the scenario that prevailed in the early years after

independence. It was only in 1985 that the Indian government started to

allow foreign technology and joint ventures to enter the Indian automotive

sector. Till 1985 you could count the number of automobile industries

operating in our country on your fingers and annual production of

automobiles in 1985 stood at1.5 millionof 2 wheelers (mostly scooters),

70,000 cars and 90,000 commercial vehicles. All these vehicles were made

by Indian manufactures without the aid of any foreign technology or any

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foreign components. What did this result in? Excessively long waiting

periods to buy a vehicle thus allowing for an absolute seller’s market,

resulting in a high cost product with very low quality and zero customer

satisfaction. Last year the quantum of automobiles production in India

stood at approximately 19 million 2 wheelers, 3.5 million of passenger

vehicles and close to 1 million of commercial vehicles. Today there are about

20 companies manufacturing passenger cars in India of which only 2 are

Indian owned. These 2 Indian companies have a market share of less than

12%. In the 2 wheelers there are close to 13 manufacturers with 5 Indian

companies who contribute to over 70% market share. 3 of these India

companies who account for major market share had entered into joint

venture agreements with leading Japanese manufacturers, were able to

absorb whatever technology was provided and were financially strong

enough to buy out their Japanese partners. All the 3 Japanese partners

have since entered the Indian market on their own and have started to make

inroads in the market share of the Indian companies. What has this meant

for the Indian customer? A seller’s market has been converted into a buyer’s

market and one can buy almost any vehicle off the shelf after they have

made a complete comparison on features, reliability and cost. The customer

now has to be satisfied if favourable mouth to mouth publicity is to be

generated and a repeat sale has to be ensured. In turn what has this meant

to companies like us for whom the customer is the automobile

manufacturer?

The Government of India started the process of liberalization in the year

1971. In the initial years a fair amount of protection was offered in terms of

specifying minimum local content and imposition of high import duties on

finished products. Gradually, before the turn of the century, all this

disappeared. Accustomed as we were to dominant positions in a protected

market we had to suddenly contend with foreign rivals wielding a daunting

array of advantages: advanced technology, superior products, substantial

financial resources, highly developed manufacturing techniques, powerful

brands and seasoned marketing and management skills. With the market

size expanding exponentially, competition also expanded in equal measures.

Competing foreign rivals with deep financial chests initiated a never before

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seen squeeze on margins. What are the major challenges faced by our

industry today.

Technology- In today’s liberalized economy, no one wants to outsource

technology without ownership. You either have to accede to a minority stake

or develop your own technology.

Manufacturing- You have to emulate the best of the manufacturing

techniques. No longer is the famous Indian Juggad of any relevance. Your

manufacturing & management capability must be proven to ensure zero

defects on products supplied by you.

Customer Expectations- The customer today requires you to be a full

resource supplier in terms of design, support and product testing. The

customer also demands that you have in place fully qualified and trained

personnel in all activities of your organization.

Support System- Your company must be equipped with an ERP system and

will need to have capability to access and interact with all data electronically

such as in design scheduling, quality etc.

Financial- Commit huge resources to all of the above and still present a

healthy balance sheet to satisfy that you are not a risk supplier.

Pricing- Ensure that you cost competitive in relation to any local supplier or

with any supplier from around the globe. The automobile giants have access

to most major markets in the world.

Customer Loyalty- Today this word has become a misnomer.You are only as

good as your last supply and/or maybe your last rating report. One slip and

you may be shoveled out. Definitely no resting on past laurels.

These are only some of the challenges. I could use a full session if I will start

to enumerate all them.

How then do we survive? One option is to focus on upgrading existing

capabilities and resources to match multinational standards often by

limiting ourselves to niche markets. One of the niche areas is to develop low

volume markets where because of our developed expertise in manufacturing

low volumes we can find ourselves to be cost effective. Also to focus on

international markets similar to that of the home base using competencies

developed in house. What is however a given for survival is that

management, quality and manufacturing systems must necessary be in line

with global standards. There has to be a concerted effort in creating a

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culture within the company ensuring that there is a constant effort in

improvement of every single process within the company. This is not limited

to technology and manufacturing only but covers every single aspect such

as human resources, marketing, finance, purchase etc. A famous quote by

Eiji Toyoda, former President of Toyota Motor Corporation is very relevant

and I quote “If you put your mind to it, water can be wrung from a dry

towel”. In other words, no matter how perfect the process is, it can still get

better. It can still improve. We have to constantly innovate. As Jay Abraham

said “Innovation basically involves making obsolete that which you did

before.” Besides innovation we have to allocate sufficient resources to

research and development for creation of new technology maybe starting

with reverse engineering with which we have long functioned and then

extending the same to development of some newer cost effective technology.

One of the major problems faced by a large many companies in the field of

automobile components is the concept of forward sourcing adopted by these

large global companies. To avoid high costs in testing critical products

developed by a new company, they would prefer to outsource the same from

an existing supplier either by imports if volumes are small or by facilitating

that supplier to set up manufacturing facilities in India. To counter this we

have to look for customers abroad with such products where such type of

testing is not essential and whom we have to entice with attractive prices. In

this we have to ensure that the customer still enjoys all the benefits offered

by the current supplier including just in time deliveries. We have to critically

examine the cost of each raw material and sub assembly process and

ascertain the better option, make or outsource. We have not only to look

within the country but around the globe for each material and sub assembly

always keeping in mind the pressure of quality and consistency. Even small

and seemingly inconsequential slip ups can cause huge financial losses by

way of product recall.

I will now like to dwell on Management research. It is indeed a tragedy that

our country with its rich history has become totally dependent on western

techniques of management. Devdutt Patnaik in his now famous books has

culled some very relevant management pearls from our ancient scriptures,

the Ramayana and Mahabharata. Who has not heard of the famous Parta

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system adopted by the very successful Birla family? Research in itself has

been defined in several ways.

A broad definition of research is given by Godwin Colibao: "In the broadest

sense of the word, the definition of research includes any gathering of data,

information, and facts for the advancement of knowledge."

Another definition of research is given by John W. Creswell, who states that

"research is a process of steps used to collect and analyze information to

increase our understanding of a topic or issue". It consists of three steps:

pose a question, collect data to answer the question, and present an answer

to the question.”

The Merriam-Webster Online Dictionary defines research in more detail as

"a studious inquiry or examination; especially investigation or

experimentation aimed at the discovery and interpretation of facts, revision

of accepted theories or laws in the light of new facts, or practical application

of such new or revised theories or laws".

In a lighter vein, the famous novelist Raymond Chandler also describes his

research as “I do a great deal of research – particularly in the apartments of

tall blondes”.

In more advanced countries we are all aware that there is fair amount of

collaboration between the academia and industry in the field of research. A

lot of this is related with the development of new products and technologies.

This process is yet to really gain any strong foothold in India. Research per

se is the quest to create new knowledge. Research for a company means

creating specific new knowledge which that company can use to further its

business. For a company it represents a medium to long term investment

which will help it to generate more revenue and profits. Till before

liberalization and/or globalization the need for research was not felt for

most companies as they were able to run their businesses with knowledge

that existed in the public domain. But that is changing now.

However if management research is not focused on the applied side which

can be used by the company to grow its business further, then we will not

see much collaboration between academia and industry on research.

University and industry will have to focus on the benefits to each party that

will result from collaborations by streamlining negotiations to ensure timely

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conduct of the research and the development of the research findings. On

the university side, there is often a lack of human and financial resources

and capabilities to produce research results that can be converted to

economic returns through patents or other means like consulting. On the

industry side, low technological capability and low interest in technological

innovation limit the demand for the external knowledge that universities

could provide.

We also have to factor in the issues of confidentiality. For any applied

research required by industry to solve a certain problem a lot of data has to

be provided to the researcher. There is always a fear that some of the data

could be misused. Also if the industry is financing or even part financing the

research it would like to be the sole user of the findings for some period of

time. Hence comes the dimension of Intellectual Property Rights. With the

current state of IP Rights in India this can create hurdles. We shall have to

overcome the factor of trust deficit.

It is a fact that other than large industries, very few industries would be able

to afford the expense of hiring several research personnel to solve their

problems. How then can collaboration benefit both industry and the

university? In this context it may be useful to differentiate between short

term and long term collaborations. Short term collaborations could consist

of on demand problem solving with predefined results that may be

articulated through contract research, consulting and or licensing. Long

term collaborations could be associated with joint projects that involve

partnerships between private funded university institutes and/or chairs and

industry which allows the industry to contract for a core set of services.

Industry in India often looks for “consultants” in the academic community –

basically experts who can help and guide them in solving problems. In this

it is often assumed that academia is already working on such types of

problems. This, very often is not the case. Industry and academia will have

to spend considerable time together to identify common issues which can

then be addressed by joint research. One of the main hurdles today is the

lack of well-defined and organized structures and mechanisms to have

researchers spend time together. This, I feel can serve as a starting point

and bring about fruitful joint research between academia and industry.

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WELCOME ADDRESS BY CHIEF CONVENOR

Dr Sharad Kumar, Dean DSIMS

Honorable Chief Guest Shri Krishna Kejriwal ji,Chairman and Managing

Director, Remsons Industries Ltd.; President RajesthaniSammelan

Educational Society- and Chairman, DSIMSShriAshokji Saraf, Trust

Members and Distinguished Guests, Dr. N. M.Kondap, Director General,

Dr. Babu,Director, DSIMS. Shri Anil Agrawal, Director Finance, Remsons

Industries Ltd. Researchers from academia and industry andMydear

colleagues and students.

It is my pleasure to have you all here to participate in our4th

RemsonsInternational Conference on Innovative Business Practices for

Achieving Excellence in Globalized Competitive Environment

Three key words emerge from the theme are:

1. Innovation

2. Globalization

3. Competition

These are the challenges as well as the opportunities for ensuring success

of any business and corporate. The corporates and business units are

required to innovate product and services and to strive for innovative

problem solutions to deal with harsh competitive environment which

operates in a globalized environment.

This conference is being organized under the aegis of Remsons Centre for

Management Research.The Remsons Centre for Management Research is

focusing on developing contemporary and usable research in various areas

of Management.This Centre has been set up with the help of the generous

donation from Remsons Group of Companies. It is set up by Late

ShriVishvaPrakashjiHarlalka in the memory of his mother Smt.

RadhadeviHarlalka.

.RESEARCH ACTIVITIES OF REMSONS CENTRE FOR MANAGEMENT

RESEARCH

DSIMS encourages its faculty and students for undertaking practical

research to address issues faced by corporates and industry. It also

encourages the faculty to undertake research Leading to Ph.D. Degree,

publish and present research papers and case studies in national and

international level conferences organized by reputed bodies/ institutions.

The faculty members are also deputed for the Faculty Development

Programs (FDPs) and Management Development Programmes (MDPs) to

enhance their knowledge and teaching effectiveness.

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BACKGROUND OF OUR EARLIER CONFERENCES

Our 1st conference was held in 2014 on the theme of Rise of Asia –

Opportunities and Challenges which was inaugurated by Dr. Lie Yufa,

Consul General of People’s Republic of China, It emerged that the Asia was

going to play a dominant role in worlds economic development. In his

inaugural address Dr. Yufa had observed that China and India is going to

dominate the entire world through their accelerated economic activities

focusing on manufacturing and services sectors respectively. He however,

had shown his concern that the Asian work force are still not in a position

to bargain what they really deserve.

The 2ndconference was held in 2015 on Outsourcing Strategy – A New

Paradigm, which was inaugurated by Mr. Prashant Saran, Member,SEBI.

Through various presentations it was evident that the outsourcing is going

to be the integral part of business strategy. Special coverage was given to

the off-shore outsourcing in a well-connected globalized business

environment.

The 3rd conference was inaugurated by the Chancellor VIT University Dr.

Vishvanathan, on the broad based theme of Emerging Management

Practices to discuss the management practices to be followed for the

survival and growth of the corporates.

The present conference received an overwhelming response by receiving a

large number of good research papers including from our own faculty and

students. We have short listed 20 papers to be presented in the conference.

We have evaluated these papers with the help of experts and with 50 %

weightage and 50% weightage will be given for the presentation and

handling the questions.

We hope it will be a very successful event which will provide good insights

to the participants of this conference. The papers selected for the

conference will be published under ISBN.

I once again thank Shri Krishna Kejriwal ji for sparing his valuable time to

inaugurate the conference. He has always been a source of inspiration for

DSIMS for its endeavors to undertake valuable research under the

Remsons Centre for management Research.

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EDITORIAL

Amidst worldwide protectionism and inwardly looking strategies by the

advanced economies, currently the most crucial ingredient for a sustained

economic growth in India is to foster Innovation. There is a growing

awareness among policymakers that innovation is the main driver of

economic progress as well as potential factor in meeting global challenges.

The physical world is highly dynamic with a continuous rotation and

revolution in its own path.We also needs to embrace this dynamism with

serious effort for continual innovation in science, technology and business

practices. As Ganesh Natarajan rightly said that Indian IT sector has to re

model their business with more innovation in terms of newer product and

platform development, not through mere wage arbitration which used to be

the model of the past.

So the need of the hour is Innovation, which can be done in product or in

processes. Innovative business practices make a nation more efficient, cost

competitive, highly rewarding and self-reliant.

The International Conference at Durgadevi Saraf Institute of Management

Studies(DSIMS) on 18 February,2017, aptly coveys the perfect synergy

between innovation and excellence in business practices across sectors to

eventually lead Indian economy to gain competitive advantage in the face of

retreated Globalisation.

The papers presented in this International Conference on the theme-

Innovative Business Practices for Achieving Excellence in Globalised

Competitive Environment are compiled as a part of the post Conference

Proceeding.

Professor ArchanaKhemka and Dr NishikantJha in their article Uncontrolled

Innovation- Private Gains at Public Loss, emphasise the importance of

regulation for uncontrolled innovations.

Prof Anthony Colaco’sworking paper on Open Innovation highlights the

importance of collaboration- internal as well as external collaboration of

resources for the maximum gain of all the stakeholders.

In his article HR Consulting: Present & Future in Competitive World, Professor

Caral D’ Cunha draw a trajectory of recruitment practices and future

prospects of HR Outsourcing industry.

The research article on A Study of Association between the Demographic

Factors and Patients’ Visit to Pharmacy authored by Dr Chandrasekhar

Kaushik, is a cross sectional survey to study a systemic association

between the patients’ visit to Pharmacy and the demographic factors of the

patients.

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To increase the retail participation in the derivatives market, Prof Chirag

Shah worked on the research article A Study of Back testing of Direction

Neutral Option Strategy on Nifty Options and bagged the best paper award as

decided by a jury of blind reviewers and session chairs.

Professor DiptiAmburle’s article Design Thinking- The Strongest Weapon of

Business Strategists, brings forth the emerging concept of Design Thinking

as a constructive approach to identify the needs of the consumers.

Phoenix Udaan of FunsukhWangdu by Research Scholar Mr Gitesh Chavan,

is a case article based on cinematic analogy. The article is a sincere

endeavour by the author to collate the three vertices, like- technology,

innovation & global business environment to create the foundation for a

successful & sustainable business.

Dr Harsh Pathak’s article Corruption and its Compliance on International

Business dealt with corruptive business practices and increasing demand

for new governance standards.

Professor Jai Kotecha, Sagar Mehta and LashaChugh’s article A Study of

Brexit & its impact on EU, analysed the long term consequence of this recent

geopolitical issue on Trade & Businesses.

Mr Neel Jani in his article Trends and Scope of Commercial Lending in India,

worked on Commercial Lending via ECB & FCCB route.

Prof Pallavi Srivastava’s field of innovation is not actually the business but

classroom. In her article Teaching of Organisational Behaviour with

Dramatics, she studied the effectiveness of interactive drama as a

pedagogical way to teach the subject of Organisational Behaviour.

Leveraging Mobile CRM- on Time Food Availability, is another innovative e-

commerce business model presented by Mr Siddharth Jain and Dr Preeti

Sharma.

Dr RavindraDey in his article Impact of Inovative Business Practices on

Employee Engagement and Employee Satisfaction, proved that irrespective of

gender, there is a positive correlation between innovative business practices

and employee engagement and satisfaction.

In the article Linking Social Sustainability to Urban Poverty, Prof Ritu Sinha

focused on the required systemic changes to address the issues of social

equity and corporate intervention.

Dr Shailja Badra and Prof Vivek Sharma in their paper The Future Lies in

Innovative Governance, highlighted the importance of E- Governance and its

impact on business efficiency.

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A unique endeavour on the part of the Institute to host a Conference on

Innovative Business Practices as one of the most critical strategic

requirement for Indian growth trajectories in times of global uncertainty.

The rich and diverse research articles presented in the Proceeding will

definitely steer young Indians to Dream Innovative Accomplishments (INDIA)

and spearhead the tools of innovation to gear our nation to the league of

advanced economies of the west and lead the global economy to a cohesive

world.

Dr Sumana Chaudhuri

Editor

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TRACK SCHEDULE

Track I

Session Chair-Prof (Dr) Anil Sutar,

Associate Dean, School of Research Methodology, Tata Institute of Social Sciences

Venue: Room No.623

SR.NO TIME AUTHOR TITLE

1 11:30 Dr. Ravindra Dey Impact Of Innovative Business Practices On Employee Engagement And Employee Satisfaction

2 11:50 Mr. Siddharth Jain

Leveraging Mobile CRM for On-Time Food Availability”

3 12:10 Dr.Sharad Kumar A Comparative Study of NPAs in Various Segments of Indian Banks

4 12:30 Prof. Pallavi Srivastava

Teaching of Organisational Behaviour with Dramatics

5 12:50 Prof. CaralD’cunha

HR Consulting: Present & Future in Competitive World

6 13:10 Prof Ritu Sinha Linking Social Sustainability to Urban Poverty

Track II

Session Chair-Dr. Asit Mohapatra,

Senior VP, HR Reliance Retail

Venue: Room No. 621

SR.NO TIME AUTHOR TITLE

1 11:30 Mr.Neel Jani Trends and Scope of Commercial Lending

in India.

2 11:50 Ms.Vanita Godhwani

A study on youth entrepreneurship and its funding

3 12:10 Prof. Dipti Amburle

Design Thinking: The Strongest Weapon of Business Strategies

4 12:30 Ms.Vinima Gambhir

Managing Employee Departures through Employee Engagement: A Review.

5 12:50 Dr.C.Kaushik

A study of association between the demographic factors and its influence on patients visiting pharmacy first for OTC medication in Mumbai.

6 13:10 Ms.Juhi Kataria A study on startup- lets_accessorize with special reference to customer psychology

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Track III

Session Chair-Prof. Dr. Vijay Page, Director General

Mumbai Education Trust (MET)

Venue: Room No.623

SR.NO TIME AUTHOR TITLE

1 14:30 Prof. Chirag B Shah A Study on Back Testing of Direction Neutral Option Strategy on Nifty Options

2 14:50 Prof Namrata Acharya & Prof Mishu Tripathi

Brexit- The Way Forward

3 15:10 Ms. Archana Khemka & Dr. N Jha

Uncontrolled Innovation-Private Gains at Public Loss

4 15:30 Prof Jay Kotecha, Sagar M & Lasha C

A Study of BREXIT & it’s Impact on European Union

5 15:50 Mr. Gitesh Chavan Phoenix Udaan of Funsukh Wangdu

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INDEX

Sl No

Title of the Paper Auhtors Page No.

1 Uncontrolled Innovation-Private Gains at Public Loss

Ms. Archana Khemka & Dr. N Jha

16

2 Open Innovation-The Way Forward Prof.Anthony Colaco 23

3 HR Consulting: Present & Future in Competitive World

Prof. Caral D Cunha 30

4

A study of association between the demographic factors and its influence on patients visiting pharmacy first for OTC medication in Mumbai.

Dr Chandrasekhar S Kaushik

40

5 A Study on Back Testing of Direction Neutral Option Strategy on Nifty Options

Prof. Chirag B Shah 52

6 Phoenix Udaan of Funsukh Wangdu Gitesh Chavan & Dr Ranjan Chaudhuri

69

7 Corruption and its Compliance on International Business

Dr Harsh Pathak 76

8 A Study of BREXIT & it’s Impact on European Union

Prof Jay Kotecha, Sagar M & Lasha C

89

9 Trends & Scope of Commercial Lending in India

Mr Neel Jani 96

10 Teaching of Organisational Behaviour with Dramatics

Prof Pallavi Srivastava

107

11 Leveraging Mobile CRM- On time Food Availability

Mr Siddharth Jain & Dr. Preeti Sharma

112

12 Innovative business practices on employee engagement and employee satisfaction

Dr Ravindra Dey 117

13 Linking Social Sustainability to Urban

Poverty Prof Ritu Sinha 134

14 The Future lies in Innovative Governance

Dr Shailja Badra & Prof Vivek Sharma

145

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Uncontrolled Innovation – Private Gains at Public Loss

By

Archana Khemka*

Dr.NishikantJha**

* Research Scholar at Thakur College of Science & Commerce,

** Prof & Research Guide at Thakur College of Science & Commerce.

Abstract:

The words invention and innovation are often used interchangeably.

However, for the purpose of our research, it is important to distinguish

between the two. Invention has been defined by experts as “creating

something new”. Innovation is defined as “improvising on something which

already exists”. However, humans resist change due to the fear of the

unknown and enlightened humans (often government) impose innovations

on us preaching that overtime the benefits would become evident. Our case

study of a string of innovative practices in the US financial services sector

leads us to conclude that innovations are potentially dangerous and

harmful from the economic, social and cultural perspectives.

What is worse is that these innovations are sourced from private entities

that are paid off in the early stages of the implementation. Hence, when

and if eventually, the innovation proves to be adversarial, the common

man pays for it (public). The innovator is rarely held accountable and

billions of dollars of tax payers’ money disappear. There are vested

interests that result in such phenomenon. Regulation is perhaps the only

plausible solution.

Keywords:

CDO, CDS, Housing, Lehmann brothers, crisis, meltdown

Introduction:

Whilst invention has been the backbone of human civilization and its

prosperity, innovation has helped us to make things better and more

suitable. So, in the context of this paper, while the invention of electric

bulb by Thomas Alva Edison was an invention, the evolution of this form of

equipment into led lights is incremental innovation.

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One could argue that innovation has helped create more efficient,

convenient, economic products and practices. However, it would be naïve

to let the adverse implication of such innovations go unnoticed. In this

paper, we would like to highlight certain innovations, which prima facie

were means of prosperity, however, their adverse impact on the socio

cultural, economic and political environment either make them obsolete or

a necessary evil.

We reckon that innovations pushed down the throat of mankind without

considering the holistic impact on the arms of sociology, economy, politics

and culture have backfired. A few examples being robotics, Collateralized

Debt Obligations (CDO), nuclear bombs (weapons of mass destruction),

fractional reserve banking, etc.We also conduct a case study on how CDOs

which presented a very lucrative investment opportunity for long term

funds ended up not only creating huge losses for these funds, but also

culminating into a global economic crisis in 2008.

We conclude this paper by highlighting current on-going innovations,

which we believe have not considered the holistic impact. We go on to

make certain recommendations as to how regulators could probably mirror

the pharmaceutical industry and let only incrementally positive

innovations be imposed on mankind.

Research methodology

We conduct a case study on CDO s and Credit Default Swaps (CDS) and

showcase their impact on the global economic environment as an example

of an innovation which led to business excellence initially, but eventually

proved to be a disaster.

Data collection

Primary data: We interviewed several investment bankers, commercial

bankers and fund managers who were directly or indirectly involved during

the CDO crisis.

Secondary data: economic data points from finance.yahoo.com, reuters,

Bloomberg, and US government websites.

The definition of “innovation” and basic human instinct

Innovation is defined as to improve on something. Mankind has used

innovation to improve the environment around itself so that it can survive.

However, by basic human instinct, humans are resistant to change. The

resistance comes from the fear of the unknown. Hence, most innovations

are literally imposed on mankind by few enlightened ones arguing that one

will realise in future that it is for the best.

What has been worse in the modern world is that the innovations have

come from private sources and since the R&D in innovation costs a lot,

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even before mankind has been able to assess the true impact of the

innovation, the innovator has had to be paid off for his efforts. Hence, later

when some of these innovations actually end up creating massive negative

impact on economics, society and culture, it is the public’s loss and the

innovator is not accountable (after effects).

However, we argue that Darwin’s theory of survival of the fittest suggests

that the instincts that have survived with mankind are there for good

reason. Hence, when we resist change and it is imposed upon us, the

imposers need to be absolutely sure that the change will be for the better.

Case study

CDO/ CDS – an innovated disastrous avatar of mortgage bonds.

In order to comprehend the role of innovation in the CDO/CDS disaster,

we first identify the various parties (sections of society/ professions)

involved.

Modern era banks (commercial + investment), Insurance companies,

Housing finance companies, Rating agencies, Institutional Investors,

Academicians and Government.

The evolution of role of banks – deregulation leading to an unstable avatar

The innovative practice for sake of competitiveness – engaging in derivatives

Banks (historically only goldsmiths) were initially allowed to borrow from

public and lend the borrowed money or make investments to make a

spread. Hence, a bank would practice fractional reserve banking under the

guidance of the central regulatory body (central banks). In the US, the

Glass- Steagall act of 1956 prohibited commercial banks from making

engaging in any risk aggressive investment banking practices. This was

done to ensure that the public deposit money was not gambled with

making risky bets. However, in 1998, when Alan Greenspan was chairman

of Federal Reserve, Citibank merged with Travellers insurance creating

CitiGroup. Although this merger was clearly a violation of the Glass-

Steagall Act, the regulators did not prevent it. Instead, they exempted the

merger for a year and in 1999, passed the Gramm-Leach-Bliley Act which

overturned Glass-Steagalland legalized the CitiGroup merger. This act

eventually came to be known as the CitiGroup Relief act.

The GLB act was a ground breaking regulation as it now allowed

commercial banks to engage in risky investment banking activities which

had thus far been the strong hold of small private partnership called

investment banks. The big difference being that the private investment

banks bet the partners own money, whereas the commercial banks were

taking such bets with the baking of public money.

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On the other hand, investment banks which were originally private

partnership between technically equipped individuals with experience in

financial markets were allowed to go public and borrow public money

(equity and debt). This led to a multi factor growth in the size of the

investment banks and hence the size of the bets that they could make. As

an example Morgan Stanley in 19xx was a private partnership with a total

strength of 110 employees including 7 partners who were the only stock

holders. It had only 1 office in the world (US). Post going public Morgan

Stanley had achieved a size of 50,000 personnel and the original 7

partners were now a minority stake in the firm’s equity. It has offices

across the globe.

The traditional home financing model

In the traditional model of lending to retail customers for housing

purposes, step 1 needs to be the assessment of the customers paying

power. This was done by assessing the source and stability of his income,

existing liabilities, future expected liabilities, past savings, current net

worth, past credit record etc. The bank, based on fractional banking

reserve, would extend the loan to a customer which would cover 70-80% of

the cost of the house and in turn would keep some money aside to cover

the risk of this lending as per capital adequacy norms. This loan would

remain on the books of the bank till the customer fully repaid the loan. In

case of default, the bank would confiscate the mortgaged house, auction it

and bear the loss (if any ) on its equity. Since, the banks equity was

involved, the credit worthiness of the customer was checked thoroughly

and it was also insured they the customer also had some (20-30%) equity

in the house.

The “innovative” home financing model

Under the innovative model, with the help of de regulation, the banks were

able to sell the housing loans on their books to investment banks and

immediately recognise profit on the transaction. Since the loan was no

longer on the books, the bank did not have to meet the Capital adequacy

norms. Further, since the banks were no longer collecting the mortgage

payments, the incentive to check the credit worthiness of the customer was

almost zeroed. For e.g. earlier a person with gross income of a $1000 p.a.

would not be able to secure a loan of more than $3000. But now, since the

banks were not worried about repayment, the same person was approved

for a loan as high as $15,000. Moreover, another innovative practices

adopted by the bank was teaser rate loans. under the teaser rate loans, the

customer was required to pay only subsidized mortgage payment for the

initial few years of the mortgage, and at a later reset date the mortgage

payment would balloon up to a much larger size. So for e.g. if in the

traditional model a customer was supposed to pay a mortgage payment of

$10 per month through the life of the mortgage, now under the traditional

model he was required to pay only $5 for initial few years, and $20 per

20

month for the remaining years. Hence, when under the new “innovative”

model the subsidy period expired, the American public at large started to

default at mortgage payments, and default rates skyrocketed to

unprecedented rates.

The role of other players and their innovative practices in the scam

Insurance companies – The innovative practice for sake of

competitiveness – insuring derivatives

AIG, the public insurer in US, was the largest insurance company. The

investment banks soon realised that as the teaser rates on the home loans

expired, defaults would rise to such an extent that most of these AAA rated

CDOs would become worthless. Thus to hedge their balance sheet

exposure to the CDO s held on their books, the investment banks started

purchasing CDS from insurers like AIG. Now, traditionally an insurer also

has to meet capital adequacy norms while providing insurance. However

since derivatives were not regulated, the insurers were allowed to sold

these products without meeting capital adequacy norms. The CEO of AIG

at a press conference in March 2007 famously said “we cannot envisage a

situation where we lose a single $ on any of these exposures”. AIG lost

$800 billion in the housing collapse, and had to be bailed out by the

federal government with tax payers’ money.

Housing finance companies – The innovative practice for sake of

competitiveness – making predatory loans

Housing finance companies like Freddie Mac and Fannie Mae (who were

bailed by US taxpayers in 2008) were the home loan providers to the larger

public. As the securitisation food chain ensured that the lender no longer

had to be the beneficiary for the repayment of the loan, the housing

finance companies started making predatory loans. This implies that the

lenders were completely aware of the fact that the borrower was incapable

of repaying the loan under normal circumstances. These loans were

extended to the low income American who had the great American dream,

but could not afford a house due to prevailing prices. However, when the

lenders stopped checking income documents or assessing repay ability, the

low income American could suddenly realise his dream. These loans were

junk rated per se. However, in mathematical models since the probability

of default of each of this loan was as high as 50%, but they were

considered as mutually exclusive event (hence ignoring systematic risk),

8000 such loans out in a CDO, would get the CDO a very low probability of

failure (50%^8000) = less than 1%. Hence, the rating agencies would rate

these CDOs as AAA that is as safe as government securities.

21

Rating agencies –The innovative practice for sake of competitiveness

– default on each loan in a given economy is a mutually exclusive

event

Fitch, Moody’s and S&P were the principal rating agencies who escaped

unscathed from this turmoil. These rating agencies have an inherent

conflict of interest. They are paid by the issuer of the instrument to rate

and evaluate its credit risk. Hence, if an issuer (say Goldman Sachs) could

not get a AAA rating for his CDO, he would simply take his business to

another rating agency. Thus, being prudent in rating these securities

would come at the cost of revenues and profits of rating agencies. Also,

these ratings that formed the base for investment of pension and

retirement trusts and funds came at a disclaimer that they were merely

opinions and should not be relied upon whilst making investment

decisions.

Investors – The innovative practice for sake of competitiveness –

investing in deregulated but AAA rated instruments the corpus

meant for government securities

Pension funds, asset management companies, sovereign funds etc lost a

huge amount of their wealth invested in CDOs which were meant to be

invested in AAA rated risk free assets like government securities. The

investors got greedy when they invested the money in CDOs as the CDOs

showed potentially higher returns vs government securities with similar

credit ratings. These investors too were aware of the credit rating agencies

disclaimer and yet they bet a substantial amount of their corpus in such

CDOs about which they knew very little other than the credit rating.

Government and Academicians - The innovative practice for sake of

competitiveness – deregulating derivatives

Academicians play a pivotal role in shaping public policy in US. The de

regulation of the financial sector which allowed “innovative practices” was

led by academicians from renowneduniversities like Harvard, Chicago and

Oxford. The Great Depression had led to US government to tighten

regulations around banks. Yet, the Reagan administration started a 30

year long process of financial deregulation and these banks were once

again allowed to engage in investment banking activities. The

academicians also catalysed this deregulation by encouraging the

Government to deregulate for the sake of economic growth and stability to

the markets. Their financial innovations did not cost them anything and

actually helped them make millions of dollars in consultancy fees from

investment banks. The taxpayer paid the bill when it came to losses from

these innovations.

22

Conclusion of the CDO case study

Whilst a handful of investment bankers, academicians, government

officials, credit rating agencies and portfolio managers benefitted from the

innovative practice of deregulating derivative products and allowing

commercial banks to bet public money on risky instruments, millions of

American taxpayers paid the bill when the system collapsed. Each of the

aforementioned benefactors made their wealth whilst they were

architecting the crisis and they were never held accountable. Hence, if

innovations aren’t controlled in a phased manner and continue to be

imposed on mankind against their will, the innovators will continue to

make their money regardless of the impact of their innovations. It is a

perfect crime to create private gains at public loss.

Recommendations

All innovations with systematic implications must be implemented in a

pilot phase to study the economic, social and cultural impact over a

reasonable period of time.

Innovators must be compensated in a phased manner in alignment with

the success of the pilot phase.

If the eventual outcome is adversarial, the innovator has to payback the

rewards received for the innovation.

The regulator should also be held accountable for the lack of its monitoring

ability in such cases and public money should not be used to compensate

for losses.

Limitations of the study

Whilst we have studied a case where many entities used innovative

practices to enable a systemic disaster, one should not discourage

innovation in any form or shape. There are many innovations that have

helped mankind to improve their lives. We are merely suggesting a

regulatory framework so that the implications can be studied from a

broader perspective and then the innovation can be judged on its merits.

References

https://en.wikipedia.org/wiki/Subprime_mortgage_crisis

https://books.google.co.in/books?id=OMlfCgAAQBAJ&pg=PA124&dq=hom

e+loan+crisis&hl=en&sa=X&ved=0ahUKEwj13dnm-

ObRAhUMp5QKHZ9hBdwQ6AEIMjAA#v=onepage&q=home%20loan%20cri

sis&f=false

https://books.google.co.in/books?id=Ur1wuFamG5cC&printsec=frontcove

r&dq=home+loan+crisis&hl=en&sa=X&ved=0ahUKEwj13dnm-

ObRAhUMp5QKHZ9hBdwQ6AEIODAB#v=onepage&q=home%20loan%20cr

isis&f=false

23

Open Innovation – The Way Forward

By

Anthony Colaco

Assistant Professor at Durgadevi Saraf Institute of Management Studies

Abstract

Open innovation is “the use of purposive inflows and outflows of knowledge

to accelerate internal innovation, and expand the markets for external use of

innovation, respectively.” Open innovation can be understood as the

antithesis of the traditional vertical integration approach where internal

R&D activities lead to internally developed products that are then

distributed by the firm. As the definition by Chesbrough suggests, there are

two facets to open innovation. One is the “outside in” aspect, where external

ideas and technologies are brought into the firm’s own innovation

process. Thus with the introduction of open innovation, company

boundaries become ‘permeable’, enabling the matching and integration of

resources between the company and external collaborators. In the ‘closed’

innovation model, companies innovate relying on internal resources alone.

For business, open innovation is a more profitable way to innovate, because it can reduce costs, accelerate time to market, increase differentiation in the market, and create new revenue streams for the company. So there’s a lot of opportunity for business to profit from open innovation. Keywords: Open Innovation, Technology, Resource Integration

Introduction Innovation not only has been considered as a critical source of competitive

advantage in an increasingly changing environment, but also, innovation

capability is one of the most important determinants of organizational

performance. Thus in the past, organizations used to conduct most of their

innovative activities in-house as this was viewed as a strategic asset, and in

some industries even as a market entry barrier. On this sense, the main

studies about innovation have been addressed from two different

approaches. The first one, or the traditional approach (closed innovation),

points out that organizational sustainable growth relies on internal

investments in R&D and the control and protection of the results derived

from these investments. However, a number of factors that characterize the

current market dynamics have deteriorated the perspective before described.

Among these factors it is important to mention the following: the labor

mobility, the abundant venture capital, the availability of knowledge, the

reduction of product life cycles, and the rising cost of technology

development.These factors coupled with the increasing complexity of

24

products and technologies, the rising costs of innovation, shorter

development lead times, organizations today are forced to open up their

innovation activities and to enter not only into different forms of

cooperation, but into new forms as well.

Literature Review Chesbrough argues that the innovation approach applied by organizations

has shifted from a closed system to an open system. In contrast to the

closed innovation approach, the open innovation approach focuses on the

acquisition of external knowledge, blurring organizational boundaries.

Ståhle goes so far as to make a distinction between open systems and

complex, self-organizing systems that are the bases for innovation

ecosystems.

The open innovation paradigm on the other hand strongly believes that

organizational boundaries are permeable rather than closed, and the locus

of innovation is moved from a location internal to the organization to a

relational system comprising the organization and its external partners

(Bogers& West, 2012; Chesbrough, 2006a, 2006b; Vanhaverbeke et al.,

2008). The model of open innovation recognizes that not all good ideas come

from inside the company and not all good ideas created within the company

can be successfully marketed internally.Therefore, an increasing number of

organizations have actively started involving customers, suppliers and other

stakeholders in their innovation processes.

Open Innovation in organizations can thus occur through three processes:

(i) outside-in or inbound process, which involves the inflow and acquisition

of knowledge from external sources; (ii) inside-out or outbound process,

which involves the outflow and commercialization of knowledge; and (iii)

coupled process, which combines the inbound and outbound processes to

result in a continuous co-creation of knowledge (Enkel et al., 2009;

Gassmann&Enkel, 2006). In an inside-out process an organization may

generate profits by transferring internal ideas to the outside environment. In

an outside-in process, organizations expand their own knowledge base

through the inflow of external knowledge provided by suppliers, customers

or other market actors. Finally, in a coupled process, organizations combine

outside-in and inside-out processes. Given the different locus of the

innovation process, each process requires different characteristics.

Gassmann and Enkel [28] conclude that organizations using an inside-out

process are very interested in branding and setting standards, whereas

organizations employing an outside-in process focus on early supplier

integration and customer co-development. Organizations using a coupled

process take a relational view of the organization.

25

Open Innovation business models enable organizations to integrate and

commercialize complementary resources and capabilities to capture value

and maximize profits from innovation (e.g., Chesbrough&Crowther, 2006;

Laursen& Salter, 2006).

Further the open innovation model has been adjusted to the current market

conditions since its adoption provides suitable benefits, such as faster time-

to-market, less cost of innovation, better adaptation of products and services

to customer needs, commercial utilization of knowledge or technologies that

are not aligned with the actual business model of the company, and shared

risk in products and services development.

In the last decade, open innovation model has attracted interest both, in

academia and industry contexts because of its adjustment to the innovation

management trend. In this sense, this paradigm has been defined in the

scientific literature by Chesbrough (2003) as “The purposive inflows and

outflows of knowledge to accelerate internal innovation, and expand the

markets for external use of innovation, respectively. Open Innovation is a

paradigm that assumes that firms can and should use external ideas as well

an internal ideas, and internal and external paths to market, as they look to

advance their technology”.This definition suggests that organizations should

put even greater emphasis on collaboration and networking. Instead of using

the ‘closed’ innovation model of keeping all innovation activities in house,

firms are being urged to open up controlled passages in their otherwise

protective organizational walls. This standpoint is often illustrated by an

innovation funnel, drilled with holes where knowledge can trickle in and out.

In other words, Open Innovation highlights the importance of using a wide

range of knowledge sources for a company’s innovation and invention

process (including customers, competitors, academics, companies in

unrelated sectors), as cooperating with external actors is essential to

increase the innovation capability. In the same way, it assumes that internal

ideas can be taken to the market through external channels, outside a firm’s

current business in order to generate additional value.

In contrast to earlier concepts discussed in the academic literature, the open

innovation paradigm regards internal and external knowledge as being of

equivalent quality. The focal point is the business model, that is, its

relevance to innovation is now considered as well. R&D evaluation is

reconsidered, which means that R&D projects that do not fit in with the

business model may be commercialized elsewhere, referring to the latter

having outbound flows of knowledge firms can benefit through the

application of external revenue models.

In contrast, inbound flows of knowledge refer to an outside-in process

intended to acquire knowledge from external sources. Additionally, it is

acknowledged that knowledge is widely distributed, which requires firms to

become good networkers in order to gain access to this pool of knowledge.

26

The bilateral flow of knowledge has also contributed to a stronger role of IP

management, opening up further means of revenues. Intermediaries also

benefit from this new situation as they help to bring together the different

actors and thus enabling transactions.

Chesbrough argues that the changing business environment has required

organizations toturn from a closed innovation approach to an open one. This

observation has paved the way foropen innovation debates. Dahlander and

Gann, however, conclude that a binaryclassification of open innovation

systems and closed ones fails to go into sufficient depth. Instead,the authors

argue that the two systems should be viewed as a continuum, making

possiblevarying degrees of innovation systems and thus of openness.

The open innovation model has been widely adopted in a variety of

industries. In spite of the fact that initial, evidence was only found in high-

tech industries (e.g., computers, information technology and

pharmaceuticals), open innovation concepts were already being used in a

wide range of industries. Similarly, it was found that SMEs in the

Netherlands employ a lot of open innovation practices and their adoption

has had an incremental behavior since its appearance.For instance, Mowery

(2009) shows that many elements of open innovation were visible in the US

industrial revolution in the late 19th and early 20th centuries.

The notion of open innovation has also been therefore criticized as simply

being ‘old wine in new bottles’ (Trott& Hartmann, 2009) that fails to “bring

anything new to the table” (Remneland-Wikhamn&Wikhamn, 2013, p. 179).

Trott and Hartmann (2009) argue that the open innovation research

community “has given insufficient credit to previous researchers who

described, analyzed and argued in favor of most of the principles on which

Open Innovation was founded, long before the term for this new model was

actually coined”.

Scholars have recognized the need to gather a consolidated understanding of

the field, and have started to review and synthesize the literature. However,

patterns within existing literature can be hard to uncover when a research

field is complex, in its early stages of inquiry, and rapidly evolving (DiStefano

et al., 2010). The relative immaturity of open innovation as a research

domain, the multitude of definitions and conceptualizations, and the steep

increase in publications in the field add to the task.

Regarding to the economic benefits generated by incorporating open

innovation practices, significant evidence has been found. For example,

Procter and Gamble announced that they were able to increase their product

success rate by 50% and the efficiency of their R&D by 60% as a result of

introducing the concept of open innovation in the organization.

Overall, the integration of open innovation practices in companies as well as

its economic benefits is evident. As can be expected, leaving behind the

closed model to move forward the open model requires significant changes in

27

the way innovation processes are managed in the companies.

McLaughlinstresses that open innovation can only happen if there is

sufficient openness and participation from all actors involved. Yet this is

easier said than done. Indeed, organizations have reported serious

difficulties when trying to implement open innovation activities.

Two tendencies in particular – the “not-invented-here” and “not-sold-here”

attitudes – seem to have a serious impact on the successful implementation

of open innovation activities. In this connection, West et al.call for research

efforts to better understand the meaning of incentives and organizations of

R&D workers.

Buganzaet al. [18] demonstrate the influence of industry-level variables,

such as R&D intensity, strengths of the appropriability regime, turbulence

and uncertainty, on the adoption and institutionalization of open

innovation. This indicates that organizations need to revise their current

business models and organizational structures so as to cope with the new

requirements presented by open innovation.

To address this challenge and to link the open innovation framework to the

related literature, Lichtenthaler [8] proposes an expanded definition of open

innovation, which says that the term comprises systematically performing

knowledge exploration, retention, and exploitation inside and outside an

organization’s boundaries throughout the innovation process” (p. 77). The

intention of this definition is to more firmly anchor the concept of open

innovation to related field of studies, such as knowledge management,

organizational learning and firm boundaries. Felleret al. argue that in order

to fully understand organizations’ open innovation activities, it is imperative

to include the economic structures, institutions and regulatory

environments as well.

Some researchers of open innovation model recognize that customer

involvement is a relevant alternative to improve internal innovation process.

According to Van de Vrande et al companies can obtain benefits from the

customer’s ideas and innovations of its clients either by doing proactive

market research, through the provision of tools to experiment with and/or

develop products similar to the ones that are currently offered; or by means

of the development and assessment of products based on customers’

designs.

Another possibility to search and integrate external knowledge in any

company’s innovation processes is by means of external networking. It

includes formal collaborative projects (e.g. R&D alliances) and more general

and informal networking activities. External networking allows companies to

quickly fill up specific knowledge needs without having to spend large

amounts of time and money to develop this knowledge on their own.Simard

and West stress the role of network ties in conjunction with open

28

innovation, and call for studies that would shed light on informal ties in the

context of open innovation. They also correctly observe that the mere

existence of ties does not automatically trigger the transfer of knowledge;

instead a certain level of trust must exist among the partners involved.

Additionally, Simard and West make reference to network portfolios which

consist of complementary ties, as firms are likely to be involved in a number

of different networks that need to be managed in order to meet the

anticipated expectations. It is important to have a coherent strategy at hand

that allows firms to integrate their collaborative activities.

Way Forward Moreover, companies can acquire intellectual property from other

organizations through licensing patents, copyrights or trademarks in

order to accelerate and consolidate their internal research engines.

Equally, projects that are not aligned with the actual business model

and core competencies of the company can be licensed to others,

providing bilateral benefits. The company that receives the license may

use it and prove its value, and the company that licenses may obtain

additional funds and observe and learn from their experience.

Companies can also invest in start-ups or other organizations (e.g.

spin-off) to keep an eye on potential opportunities for innovation.

It was found that companies actively collaborate with other

organizations (universities, competitors, companies in unrelated

sectors, suppliers, etc.) in order to satisfy a specific technological or

knowledge need and/or to improve and expand the products and

services portfolio. These organizations either have solutions that can

improve the company’s innovations or that can exploit solutions the

company has developed. These collaborations provide a number of

benefits (e.g. faster products or services development and cost

reduction), which allow companies to effectively react to market

requirements, obtaining greater productivity, competitiveness and

leadership. Universities are a source of knowledge that impacts the

companies R&D processes. This can be achieved through various

channels, for instance: consulting, research partnerships, research

services, academic entrepreneurship, human resource transfer (from

industry to university and vice versa), commercialization of intellectual

property, scientific publications and informal interaction.

References G. G. Dess and J. C. Picken, “Changing roles: Leadership in the 21st century,” Organizational Dynamics, vol. 28, no. 3. pp. 18–34, Jan. 2000 B. Lawson and D. Samson, “Developing innovation capability in

29

organisations: A dynamic capabilities approach,” Int. J. Innov. Manag., vol. 5, no. 3, pp. 377-400, Sep. 2001. H. Chesbrough and A. K. Crowther, “Beyond high tech: Early adopters of open innovation in other industries,” R&D Manag., vol. 36, no. 3, pp. 229–236, June 2006 H. Chesbrough, “Managing open innovation,” Res. Technol. Manag., vol. 47, no. 1, pp. 23–26, Feb. 2004. V. van de Vrande, J. P. J. de Jong, W. Vanhaverbeke, and M. de Rochemont, “Open innovation in SMEs: Trends, motives and management challenges,” Technovation, vol. 29, no. 6–7, pp. 423– 437, Jun. 2009.

C. Simard and J. West. “Knowledge Networks and the Locus of Innovation,” in Open Innovation: Researching a new paradigm. H. Chesbrough, W. Vanhaverbeke and J. West, Eds. Open innovation: Researching a new paradigm, Oxford: Oxford University Press, 2006, pp. 220-24 P. Ståhle. “The dynamics of self-renewal: A systems-thinking to understanding organizationalchallenges in dynamic environments,” in Organisational Capital: Modelling, measuring and contextualizing. A. Bonfour. Ed. London: Routledge, 2008. U. Lichtenthaler. “Open Innovation: Past Research, Current Debates, and Future Directions.”Academy of Management Perspectives, February, pp. 75-93, 2011. O. Gassmann and E. Enkel. “Towards a Theory of Open Innovation: Three Core ProcessArchetypes,“ presented at the R&D Management Conference (RADMA). Lisbon, Portugal,July 6-9, 2004.

30

HR Consulting: Present & Future in Competitive World

By

Caral D’Cunha

Assistant Professor at NL Dalmia Institute of Management Studies and

Research

Abstract

HR outsourcing as an organizational strategy has increased substantially

over the last decade. In a significant shift, companies are outsourcing for

competitive advantage, seeking benefits ranging from access to expertise

better information management. Large Indian companies are diversifying

into new sectors and prefer candidates with relevant experience. However,

since their HR function find it difficult at times to source candidates from

the large and geographically dispersed talent pool, companies are

increasingly looking at external help. This change in approach and mindset

has made sourcing a relatively complex activity, resulting in companies

increasingly partnering with recruitment consultants with a global footprint

or access to global databases to source the right candidates. The objective of

this research paper is to study current trends & future prospects of the HR

outsourcing industry in Indian context.

Keywords:

Permanent recruitment, temporary staffing, trends

The HR Solutions Industry: An Introduction

While there is no uniform definition for the HR solutions industry, we may

define it as the rewards derived from any decision on buying services for any

part of the human capital value chain. The HR solutions industry can be

broadly divided into two main functions — permanent recruitment of

executives and professionals, and temporary recruitment, specializing in

professional and general staffing.

HR solutions are being increasingly viewed as a distinct industry with the

role of HR consultants evolving with changing market dynamics.

Large Indian companies are diversifying into new sectors and prefer

candidates with relevant experience.

However, since their HR function find it difficult at times to source

candidates from the large and geographically dispersed talent pool,

companies are increasingly looking at external help. This change in

approach and mindset has made sourcing a relatively complex activity,

resulting in companies increasingly partnering with recruitment consultants

31

with a global footprint or access to global databases to source the right

candidates.

The service industry is a people-driven one and is clocking double-digit

growth. The service industry has a large manpower requirement, which

facilitates the need for a large HR function to fulfil its growing needs. Since

recruitment is not a recurring activity and is a function of economy and a

company‘s growth plans, companies prefer to partner with consultants to

source the right candidates as and when required, and have their HR

function focus on the core and strategic activities of selection, planning and

retention.

Temporary staffing is a growing human resource trend and the phenomenon

is finally catching up in India. While industry experts estimate employee

leasing to be a US$140 billion business worldwide, the domestic staffing

industry has yet to witness large figures. The scenario is however set to

change as companies are increasingly partnering with consultants, and

experts expect that in the near future, 2.5%-3%of the workforce in the

country will be hired on a temporary basis.

Objectives of the study:

To study the recent trends in HR consulting industry in India.

To understand the future of the HR consulting industry in India.

Literature review:

Graubner, M., & Richter, A. (2003)HR and benefits consulting is growing

rapidly as employers struggle to bridge the gap between their HR needs and

talent pool. So says a recent report by Kennedy Information in Fitzwilliam,

N.H., publisher of Consultants News, entitled The Global Human Resources

Consulting Marketplace: Key Data, Forecasts & Trends.

"For many years HR consultants sat in the shadow of more glamorous

strategists and IT mavens," according to Tim Bourgeois, Kennedy's vice

president of research and advisory services. "But the drum-tight labor

market and new attitudes toward human resources have brought HR

consulting to the fore.

"As a result, we see new respect for this consulting discipline, as well as new

HR techniques and practices and intense acquisition activity among HR

consulting firms."

The report found that HR consulting growth has been driven by changes in

(and the complexity of) client needs, the widening gap between HR needs

and work force capabilities, and the ability of HR management consulting

firms to fill this gap.

32

Vosburgh, R. M. (2007)Concentration in the consulting industry is not a

transitory phenomenon of the current economic crisis but, in fact, a sign of

a long-term shift in power away from consultants toward their clients.

Inevitably, over the next 3 to 5 years these developments will have a

significant effect on the internal organization of consulting firms, especially

their human resource management policies and practices. On the supply

side, competition in the consulting industry has been growing as many

companies have entered the market. On the demand side, clients are

becoming increasingly choosy, and under the current market conditions,

they can be. Consulting firms need to take a more conscious look at their

organizational and HRM policies and practices and employ these tools more

proactively.

Permanent recruitment

The permanent recruitment market is estimated to be in the range of INR28–

INR31 billion1. This segment can be divided into executive search# and

recruitment#. “Search,” being a niche category, is focused on hiring of CXO-

level positions in an organization, while recruitment is for mid- and junior-

level positions.

Permanent recruitment is a four-step process of sourcing — screening,

selection and on-boarding of candidates — with sourcing being one the most

critical steps, since it involves short listing and attracting the right

candidates from the pool.

Sourcing of the right candidates takes place through campus recruitment

programs, employment agencies, internal referrals and job portals. However,

employment agencies and referrals account for more than 65%2 of the

candidate sourcing process. Sourcing of candidates through employment

agencies is now gaining traction and currently has a 30%2 share.

Executive search In the early 90s, “executive search” was less prevalent, and small placement

agencies dotted the landscape. It was all about database recruiting. The

transformation was noticed after the economy opened up with

multinationals setting up shop in the country. Business for the Indian

search industry largely emanated from global MNCs and accounted for 85–

90%3 of their revenues. The space was dominated by HR consultants such

as ABC consultants and Mafoi.

The end of the 90s and the early 2000s saw the entry of some global search

companies such as Amrop, EgonZehnder, Korn Ferry, Transearch and

Heidrick& Struggles into India. At that time, these MNCs followed the policy

of their international CXOs heading their India operations.Themid 2000s

saw the emergencies of new industries and the need for local talent led

33

multinationals to demand a more scientific approach to top-rung hiring.

Large search companiesbegan importing their knowledge base, global best

practices and proprietary tools to their Indian subsidiaries.

Recruitment India’s recruitment industry has grown with the rising prominence of

industries such as IT, telecom, retail, pharma, ITES and hospitality. These

industries have shown significant growth on the back of strong demand

from the rising Indian consumer class and the dominance of Indian

companies in the outsourcing space.

The recruitment industry has evolved on the back of the increase in the

demand for workforce on the talent acquisition and the client fronts. On the

talent acquisition front, the change has been significant, from a mere

match-making function and career counseling to competency-based

assessment hiring. On the client side, it has moved from a requirement-

based fulfilment system to turnkey project-based hiring to hiring for value

added services (VAS).

The recruitment market for the junior level is dominated by a large number

of small companies and job portals from which companies generally source

profiles. Being a volume- driven segment, the focus is more on the

turnaround time than quality. Hence, having a large data base is of prime

importance. Given the volume nature of this industry sub-segment, fees for

consultants may be lower (in the range of 7-10%2 of the annual cost-to-

company salary) per recruitment.

Temporary recruitment

The temporary recruitment market is estimated to be INR172 billion.

Temporary recruitment takes place when a temporary work agency finds

and retains workers, while other companies in need of short-term workers

enter a contract with the agency to send temporary workers on assignment.

Temporary employees are generally used in industries that are cyclical in

nature and require frequent adjustment of staffing levels.

The temporary recruitment market can be broadly classified on the basis of

the skill set of temporary workers.

34

Professional staffing:

A staffing company provides temporary skilled professionals on their

payrolls tolarge companies that typically operate in the IT and engineering

sectors. These Professional are technically proficient workers such as web

developers, planners, etc.

General Staffing - White collar:

A staffing company provides temporary skilled labor on their payrolls to

large companies operating in the ITeS, retail and telecom sectors. These may

be people with basic training for generic training, e.g., front -ending a retail

store, BPO employees, etc.General staff salaries typically range between

~INR 10,000 and 13, 0002 pm.

Staffing - blue collar:

A company provides a large number of employees to factories or plants.

These typically include workers. Blue collar staff are paid the minimum

wages applicable in the state where the company operates around ~ INR

5,000 to 8,000 pm.

Other segments of the HR industry

Recruitment process outsourcing (RPO)

The provider acts as a company’s internal recruitment function for all or

part of its recruitment activities, e.g., sourcing of the right candidates,

screening candidates through tests and/or interviews, selection of

candidates based on screening results, and on-boarding and training.

While the global scenario in RPO is evolving rapidly, offshoring in India has

been relatively slow to take off. There are very few homebred companies that

prominent in this space (Elixir Web Solutions, MaFoi Consultants and

Professional

staffing

General Staffing

- White collar

Staffing - blue collar

35

People Strong). Several other RPOs are extensions of recruitment agencies

that offer their services to prevent RPO from having a cannibalizing effect on

their recruitment business. RPO contracts generally extend for six months

to a year, unlike recruitment, which is based on successful referral, and it is

an annuity. However, most recruitment companies do not have the

wherewithal to support the large-scale nature of such contracts and global

clientele.

Most of the recent newsmakers in the Indian RPO space are global players

that are setting up or expanding their Indian delivery base. Some of these

include Alexander Mann Solutions, which has tied up with ABC

Consultants, and Kelly Services, which is launching its RPO services in the

country.

Large international players have entered the Indian market as they are of

the view that small and medium-sized companies will increase their

outsourcing of non-core activities. Moreover, with the market becoming

increasingly more competitive, large players are also expected to begin

outsourcing to reduce costs and increase their efficiency.

Payroll processing and compliance

Payroll outsourcing largely involves analysis of organizational data,

computation of gross salaries, TDS, allowances, reimbursements of

expenses and filing of TDS.

Organizations have the option to establish their payroll systems, but it is

time-consuming and requires expertise. Increasing workloads, strategic roles

gaining in importance, low costs and the enhanced quality of outsourcing is

driving organizations to outsource their processes. According to a survey

conducted by the Society for Human Resource Management, 49%1 of

organizations are outsourcing their payroll processes due to their increasing

headcount.

This space is dominated by large established players such as Hewitt and

Mafoi and small players find it difficult to enter the space, since not all of

them provide end-to-end solutions and last-mile compliance, which is an

extremely important factor. Furthermore, organizations are not comfortable

sharing sensitive information with less established and known players.

Contracts in payroll outsourcing are generally offered for fixed fees in the

range of INR100–INR150per employee. Some of the key success factors in

any payroll agreement include technology, security, last mile compliance,

business continuity and web-enabled query-handling capabilities.

36

Online job portals

These are job sites that list jobs according to different classifications and

post job requirements for a position to be filled. Through a job website, an

employee can locate and fill out a job application, submit resumes on a

database, which is accessed by recruitment consultants for any job opening

that has not been advertized.

Naukri, Monster, Head Honchos, and Times Jobs are some of the large

online job portal players. They earn revenues in the form of fees for every

successful referral. Online job portals face stiff competition from recruitment

agencies andinternal referrals.

Large recruitment companies such as ABC Consultants, Michael Page and

Vito have launched their own job portals to have a presence across the value

chain, increase their margins and establish their brands.

Employment training

Defined by high value corporate training to upgrade the skills of employees

and make them productive from the time they come on board.

Although corporate organizations are realizing the benefits of training, they

cut down on their training spend significantly during a downturn. Training

contracts with the private sector are not long term in nature in nature and

revenues earned are “non-sticky.”

Source: MCA website, ROC financials

37

Emerging trends

Emerging trends in Executive search:

1) Large executive search firms providing CXOs on hire for a short term

a) Large executive firms have started providing CXOs for short tenures of one to three years to stressed investee companies, to enable them to turn around their operations, or to companies looking for subject matter experts to guide them through their roll-out plans to enter new sectors.

b) Huge demand for CXOs on hire by private equity investors for their investee companies

c) Demand from large corporate organizations planning to enter new sectors and conducting pilot testing to fulfill the need for CXOs on hire

Emerging trends in Recruitment:

1) Recruitment firms providing RPO as an offering

a) RPO can have a cannibalizing effect on traditional forms of recruitment; hence, to avoid any loss of business, most recruitment providers have themselves begun providing RPO as a service offering.

b) RPO as a service is an annuity and the term of contracts vary from six months to a year, providing a definitive revenue source to recruitment-focused companies, wherein revenue is only earned on successful referrals.

2) Recruitment firms with their own online portals

a) Recruitment Consultants have their own online portal, called “Head Honchos,” on which they post jobs for senior- level positions only.

b) Mid-level recruiters have ready access to a database of relevant profiles and therefore have a quick turnaround time.

c) Recruitment agencies can have higher margins because they do not need to share their revenues with online portals to source profiles.

d) They help recruitment firms build credible brand.

3) Large executive search firms entering mid-level recruitment

a) The mid-level recruitment segment, which provides an opportunity of INR16.5–INR18 billion1, is characterized by average margins (lower than in executive search), but higher volumes.

Emerging Trends in temporary recruitment:

1) Recruitment companies providing RPO as an offering

38

a) Manpower, which was focused more on recruitment and general staffing, has acquired WDC, which is a large player in professional staffing.

b) Professional staffing companies have high margins.

c) IT companies are pioneers in engaging temporary employees, and therefore, companies do not need to educate them about the benefits derived from availing of these services.

d) IT companies are gradually increasing the share of temporary staff in their total workforce.

2) Staffing companies entering managed services

a) Staffing companies are moving up the value chain and have entered

managed services to earn increased margins.

3) Large international players entering blue collar staffing

4) Staffing companies entering into vocational training

a) Training is the starting point for developing a temporary work-force. A company with training facilities has an edge in terms of an employment-ready and local temporary workforce.

5) 6) Permanent reruitment focused firms entering temporary recruitment

a) Recruitment-focused companies are entering the temporary recruitment segment to build a healthy top line. A large balance sheet makes them attractive from the perspective of investors and banks and helps them to obtain funds required for their future growth.

b) A large player in recruitment and search planning is also planning to enter the temporary recruitment segment.

The road ahead

The HR solutions industry is highly competitive and is poised for enormous

growth in the next 10 years as companies increase their investment in their

HR infrastructure.

Changing market dynamics and global competitive pressures has resulted in

business becoming more complex. This has made companies realize the

importance of getting the right candidates to undertake complex tasks and

outsourcing non-core activities. Companies that were earlier reluctant to

engage external vendors now consider HR consultants their partners in

achieving their organizational growth strategy.

Search

The search market, which evolved in the late 2000s, is expected to continue

growing on the back of the expansion and entry plans of large domestic and

international companies into new sectors and geographies.

39

Recruitment

Recruitment is expected to evolve from a fragmented ecosystem to players

adopting ways to work closely with clients’ requirements, where “resume

pushers” (who do not add significant value to their clients) will eventually get

marginalized. Recruitment companies are likely to move away from sourcing

relevant candidates to accessing the right ones by using psychometric and

other robust tests to shortlist them.

Temporary staffing

Temporary staffing, one of the leading HR trends today, is expected to

increase its penetration significantly, given the current uncertain economic

conditions. Companies and captive units are likely to increasingly depend on

agencies to lease them with the required manpower in time, to meet sudden

demand from clients.

Other segments

Organizations are fast realizing the benefits of outsourcing non-core activities

and focusing on enhanced value-added activities. Outsourcing non-core

activities enables HR professionals to move away from routine administration

to a more strategic role. As a result, the number of companies outsourcing

HR activities is expected to continue to rise and the scope of outsourced HR

activities to expand.

The HR solutions industry is seems poised for interesting times; with 11

deals in the last three years, the overall sector is expected to keep innovating

and evolving toward exponential growth.

Bibliography:

Graubner, M., & Richter, A. (2003). Managing tomorrow's consulting

firm.Consulting to Management, 14(3), 43-50.

Switser, J. ((Nov 1997)). Trends in human resources outsourcing. Management Accounting, 22-27.

Vosburgh, R. M. (2007). The evolution of HR: Developing HR as an internal

consulting organization. HR.Human Resource Planning, 30(3), 11-16,18-23.

Young, E. &. (2012). Human Resource Solution Industry. KolKatta: Executive Recruiter Associates.

Employee Benefit News, 13(5), 7.10(1)

www.mca.gov.in/

40

A Study of Association between the Demographic Factors and

Patients’

Visit to Pharmacy

By

Dr. Chandrashekhar Suresh Kaushik

Associate Professor at Durgadevi Saraf Institute of Management

Studies

Abstract

Medicines which do not require doctor’s prescription for sale are called as

over the counter or OTC medicines. In developing country like India, most of

the patients visit pharmacies first, when they suffer from various common

indications. These patients are given OTC medicines by the pharmacists. The

purpose of this study is to find out whether a systematic association exists

between the visit of patient to pharmacy first for medication on various

indications with the demographic factors, like, age of patient and education

of patient in Mumbai. The study is a cross- sectional survey of patients

visiting pharmacy stores before visiting doctor to get OTC medicines in

Mumbai city.

Keywords:

Age, Education, OTC medicines, Patients, Pharmacy, Indication.

INTRODUCTION:

Medicines which do not require doctor’s prescription for sale are called as

over the counter or OTC medicines. In developing country like India, most of

the patients visit pharmacies when they suffer from various common

indications. These patients are given OTC medicines by the pharmacists.

In today’s world, every day, lakhs of people visit community pharmacies for

their health care needs (Adepu & Nagavi, 2006).In patient- centered health

care, the first challenge is to identify and meet the changing needs of

patients. There should be a universal code of conduct for pharmacist working

in pharmacy to safeguard patient’s health. Pharmacists practicing in

community pharmacy are shifting their aim from drug product to serving

patient. This change in shift has brought in the changing role that

pharmacist have to adopt. Now pharmacists have to adopt a more patient

focused approach. The change in priority has been an evolving process, not

an event. (Knowlton, 1990, p. 28).

41

The most commonly understood definition is “Pharmaceutical care is the

responsible provision of drug therapy for the purpose of achieving definite

outcomes that improve a patient’s quality of life” (Hepler & Strand, 1990).

Increase in consumption of medicines is because of increase in the life span

of individuals, newer and newer infectious diseases are emerging, younger

generation people are suffering from chronic diseases, which can be related

to lifestyle diseases, and to treat this we need lifestyle medicines. In many

parts of the world, patients (consumers) can now buy medicines in

supermarkets (malls), in drug stores or at markets. In some parts of the

world, where there is prevalence of e-prescription (electronic prescription)

there is e-dispensing i.e. medicines can be obtained by mail order and / or

Internet.

According to Philip Kotler, “Retailing includes all the activities involved in

selling goods or services to the final customers for personal, non-business

use” (Pradhan, 2010, p. 4)

Retailing activity related to medicines is done in stores called ‘Pharmacy’. The

word pharmacy has different synonyms in India, like ‘Medical store’,

‘Chemists and Druggist’, ‘Drugstore’, ‘Chemists’ to name a few.

LITERATURE REVIEW:

For review on consumer’s views, Literature review was done by Eades,

Ferguson, & O’Carroll (2011). This study was done from 2001 to 2010. The

major findings in the study by (Eades, Ferguson, & O’Carroll, 2011) were

consumer’s perception of pharmacists was of a drug expert rather than

experts on health and illness. Visit to the pharmacy by consumers was

majorly for dispensing prescriptions and purchasing over the counter (OTC)

medicines.

A research done by (Upasani, Shah, Ingle, & Patil, 2011) dealt with status of

retail as well as their social status and role of community pharmacists in

Amalner Tehsil in Khandesh Region of Maharashtra, India, threw the same

light which earlier researchers had studied. Upasani et.al., mentions,

pharmacists have opportunity to communicate with patients. Pharmacists

are proving themselves as health care professionals through their services in

developing countries.

A study conducted by Eadeset. al (2011) where they have mentioned, visit to

the pharmacy by consumers was majorly for prescriptions and purchasing

over the counter (OTC) medicines and consumer’s perception of pharmacists

was of a drug expert rather than experts on health and illness.

A study conducted by Caamano et.al (2005) assessed the opinion of

pharmacists on medicines dispensed by them without requiring a doctor’s

prescription. The study was conducted in Spain, where a cross-sectional

42

study was undertaken to study 166 community pharmacists. In the study,

pharmacists were asked for their opinion on their responsibility regarding the

dispensed drugs and pharmacists’ perception of their work performed. The

results were almost 66% pharmacists dispensed antibiotics (used for

infections) without prescription, the percentage increased drastically to 83%

when it came to non-steroidal anti-inflammatory drugs (NSAID used for pain)

as compared to 46% for angiotensin converting enzyme inhibitor drugs (used

for hypertension). The results further mentions, pharmacists which had more

workload, did not insist on demand for medical prescriptions. “In contrast,

pharmacists who stressed the importance of their duty in rationalizing the

consumption of drugs more frequently demanded medical prescriptions”

(Caamano, Tome-Otero, Takkouche, & Gestal-Otero, 2005).

Wazaify et.al (2005) study was to investigate the public’s perceptions and

opinion about OTC medicines. The researchers divided the questionnaire into

parts which addressed, “Attitudes towards community pharmacy and

patient’s contacts with pharmacies” with “attitudes towards the use of OTC

medicines” and “views on OTC medicines” (Wazaify, Sheilds, Hughes, &

McElnay, 2005). The data was collected from 1000 respondents using a

structured interview technique from Northern Ireland. Pilot was done in

small sample, with general public (n=20).The results did show, almost, 70%

patients reported they visit always or often the same pharmacy, and the

reason being to obtain a prescription medicine, over 60% patients reported

they are comfortable in seeking advice from pharmacists for minor ailments

rather than visiting a doctor.

Further, theresults pointed out recommendation of the pharmacist were a

major influence in the choice of OTC medicines. According to the

researchers, in recent years, there is a positive trend among patients in self-

medications with non-prescription drugs, these non-prescription drugs are

often called over the counter (OTC) drugs. The common OTC drugs in

Wazaify et.al (2005) study were Cough remedies, Painkillers,

Indigestion/heart burn, Hay fever products, Vitamins and/ or minerals,

Laxatives, Anti-diarrheal. Hugheset. al (2001) found there is an advantage of

self-medication when it comes to healthcare systems, as it leads to good use

of clinical skills of pharmacists, patient’s easier access to medication. But,

increasing availability of OTC drugs may motivate patients to think that there

is a drug for every disease/disorder. Moreover, Hughes C. (2003) states, the

use of such over the counter products may delay or act as hindrance to the

diagnosis of serious illness.

Bissell et.al. (2000) and Hughes L. (2002) reported the reflection of the

public’s growing confidence in self-care. This was substantiated by Wazaify

et.al (2005) study mentioning a rise in number of people buying OTC

medicines regularly. Mr. Terry Spears in his article named, Community

Pharmacists Play Key Role in Improving Medication Safety, mentions, “ as

43

trusted community health advisors, pharmacists can promote the safe use of

medications and improve clinical outcomes” (Spears, 2010).

(Neoh C. F., Hassali, Shafie, & Ahmed, 2011)in their research related to

nature and adequacy of information on dispensed medications delivered to

patients in community pharmacies have highlighted patients should receive

information related to their medications from healthcare professionals such

as a community pharmacist, general medical practitioner or their assistants.

Yet the information provided by these healthcare professionals may be

inconsistent, incomplete and insufficient for patients to understand. Without

adequate and appropriate information conveyed to the patients, medication

errors are likely to occur. The researcher further states, “There is a globally

growing trend for consumers to self-medicate with non-prescription

medications for common ailments and pharmacists are the most accessible

healthcare professionals who are equipped with specialized knowledge in

relation to the safe and rational use of medications.

METHODOLOGY:

Purpose:To find out whether a systematic association exists between the

visit of patient to pharmacy for medication on various indications with the

age of patient and education of patient in Mumbai.

The research done was Exploratory and Descriptive in nature. Qualitative

approach: In-depth interviews were conducted with 10 patients across

Mumbai. This was done to know what does individuals perceive and expect

from a pharmacy where they purchase medicines. Quantitative approach:

The tool used for this survey was a questionnaire for patients. Before

conducting field survey, pilot study was undertaken; data was collected from

20 respondents from Mumbai.

Patient’s Questionnaire: Self-developed questionnaire. There were few

questions taken from Community Pharmacy Patient Questionnaire (CPPQ),

which was formerly referred to as Patient Satisfaction Questionnaire, with

few questions related to the research were taken from patient’s questionnaire

developed by Dr. Carmin Jane Gade(Carmin, 2003).

Sampling Design are Patients (Individuals) living in Mumbai. Sampling

method was Random purposive sampling for both Pharmacists and Patients.

Note: Purpose defined: Randomly selected individuals from households where

the researcher had gone for filling patient’s questionnaire. The Sample size

taken was 300 Patients (Individuals) living in Mumbai city.

Statistical test: Chi Square test

44

Variables and Measurement:This hypothesis has six common indications

for patient’s visit to pharmacy first viz.1) Headache, 2) Cough/Cold,

3)Backache/Bodyache 4) Diahorrea/Dysentery, 5) Low grade fever6)

Indigestion/Flatulence.This hypothesis has two parameters viz. age of

patients and education of patients. There are 12 sub hypotheses in this

study.

Objective of the study: To find out whether a systematic association exists

between the visit of patient to pharmacy for OTC medication on various

indications with the demographic factors.

Hypothesis : Visit of patient to pharmacy first for medication on various

indications is

independent of age of patient and education of patient in Mumbai.

RESULTS:

From the parent hypothesis, we can get 14 sub hypothesese.g.One indication

with one demographic parameter is given below,

Sub Hypothesis Abbreviation: H01A= Null Hypothesis, 1 for indication

headache, A for age of patient. Similarly, H01E= Null Hypothesis, 1 for

indication headache, E for education of patient. Similarly for other

indications, 2 for Cough / Cold, 3 for Backcahe / body ache, 4 for

Diahorrea/ Dysentry, 5 for Low grade fever and 6 for Indigestion/ Flatulence.

Indication :1) Headache

For demographic variable – Age of patient

H01A :Visit of patient to pharmacy first for medication on headache

indication is independent of age of patient in Mumbai.

H11A :Visit of patient to pharmacy first for medication on headache

indication is dependent of age of patient in Mumbai.

For demographic variable – Education of patient

H01E :Visit of patient to pharmacy first for medication on headache

indication is independent of education of patient in Mumbai.

H11E :Visit of patient to pharmacy first for medication on headache

indication is dependent of education of patient in Mumbai.

Similarly for other 5 indications we have rest 10 sub hypotheses

Parameter

1) Headache

Sub

Hypothesis

(Null)

Patient

visit P value H0 (Mumbai)

Age of Patient H01A Pharmacy 0.087 Accepted

Education of

Patient H11E Pharmacy 0.867 Accepted

45

Table 1: Sub hypothesis testing of patients age and pharmacy visit for

parameter headache in Mumbai and Sub hypothesis testing of patients

education and pharmacy visit for parameter headache in Mumbai

Parameter

2) Cough/Cold

Sub Hypothesis

(Null)

Patient

visit P value H0 (Mumbai)

Age of Patient H02A Pharma

cy 0.257 Accepted

Education of

Patient H02E

Pharma

cy 0.867 Accepted

Table 2 :Sub hypothesis testing of patients age and pharmacy visit for

parameter cough/cold in Mumbai and and Sub hypothesis testing of

patients education and pharmacy visit for parameter cough/cold in Mumbai.

Parameter

3)

Backache/Bodyache

Sub

Hypothesis

(Null)

Patient

visit P value

H0

(Mumbai)

Age of Patient H03A Pharmacy 0.932 Accepted

Education of Patient H03E Pharmacy 0.236 Accepted

Table3: Sub hypothesis testing of patients age and pharmacy visit for

parameter backache/body ache in Mumbai and Sub hypothesis testing of

patients education and pharmacy visit for parameter backache/body ache in

Mumbai.

Parameter

4)

Diahorrea/Dysentery

Sub

Hypothesis

(Null)

Patient

visit P value

H0

(Mumbai)

Age of Patient H04A Pharmacy 0.014 Rejected

Education of Patient H04E Pharmacy 0.671 Accepted

Table 4: Sub hypothesis testing of patients age and pharmacy visit for

parameter diahorrea/ dysentery in Mumbai and Sub hypothesis testing of

patients education and pharmacy visit for parameter diahorrea/ dysentery in

Mumbai

Parameter

5) Low Grade Fever

Sub Hypothesis

(Null)

Patient

visit P value

H0

(Mumbai)

Age of Patient H05A Pharmacy 0.000 Rejected

Education of Patient H05E Pharmacy 0.445 Accepted

Table 5: Sub hypothesis testing of patients age and pharmacy visit for

parameter low grade fever in Mumbai and Sub hypothesis testing of patients

education and pharmacy visit for parameter low grade fever in Mumbai.

46

Parameter

6) Indigestion/

Flatulence

Sub Hypothesis

(Null)

Patient

visit

P

value

H0

(Mumbai)

Age of Patient H06A Pharmacy 0.042 Rejected

Education of Patient H06E Pharmacy 0.695 Accepted

Table 6: Sub hypothesis testing of patients age and pharmacy visit for

parameter indigestion / flatulence in Mumbai and Sub hypothesis testing of

patients education and pharmacy visit for parameter indigestion / flatulence

in Mumbai

Crosstabs- Headache indication - The result mentions 89% of patients do

visit pharmacy first for headache indication in Mumbai. Out of the total

patients surveyed, 49% patients belonging to age group 18 – 27 years prefer

visiting pharmacy first for headache indication and 55% of the patients

having degree prefer visiting pharmacy first for headache indication in

Mumbai.

From the above (table 1), we can prove the above mentioned sub hypothesis,

For sub hypothesis H01A if the p value is < or = 0.05 then we reject the null

hypothesis, here the p value is 0.087 which is more than 0.05 and therefore

null hypothesis H01A is accepted. We accept the null hypothesis H01A,

therefore, Visit of patient to pharmacy first for medication on headache

indication is independent of age of patient in Mumbai.

For sub hypothesis H11E, if the p value is < or = 0.05 then we reject the null

hypothesis, here p value is 0.867 which is more than 0.05 and therefore null

hypotheisH03aAM is accepted. We accept the null hypothesis H03aEM,

therefore, Visit of patient to pharmacy first for medication on headache

indication is independent of education of patient in Mumbai.

Crosstabs- Cough / Cold indication- The result mentions 75% of patients

do visit pharmacy first for headache indication in Mumbai. Out of the total

patients surveyed, 58% patients belonging to age group 18 – 27 years prefer

visiting pharmacy first for headache indication and 54% of the patients

having degree prefer visiting pharmacy first for cough/cold indication in

Mumbai.

From the table (table 2), we can prove the above mentioned sub hypothesis,

For sub hypothesis H02A if the p value is < or = 0.05 then we reject the null

hypothesis, here the p value is 0.257 which is more than 0.05 and therefore

null hypothesis H02A is accepted. We accept the null hypothesis H02A

therefore, Visit of patient to pharmacy first for medication on

cough/cold indication is independent of age of patient in Mumbai.

47

From the above table we can prove the above mentioned sub hypothesis, For

sub hypothesis H02E if the p value is < or = 0.05 then we reject the null

hypothesis, here the p value is 0.867 which is more than 0.05 and therefore

null hypothesis H02E is accepted. We accept the null hypothesis H02E,

therefore, Visit of patient to pharmacy first for medication on

cough/coldindicationisindependent of education of patient in Mumbai.

Crosstabs-Bodyache/Back ache indication- The result mentions 60% of

patients do visit pharmacy first for backache/bodyache indication in

Mumbai. Out of the total patients surveyed, 50% patients belonging to age

group 18 – 27 years prefer visiting pharmacy first for backache/bodyache

indication and 60% of the patients having degree prefer visiting pharmacy

first for backache/bodyache indication in Mumbai.

From the table (table 3) we can prove the above mentioned sub hypothesis,

For sub hypothesis H03A if the p value is < or = 0.05 then we reject the null

hypothesis, here the p value is 0.932 which is more than 0.05 and therefore

null hypotheisH03cAM is accepted. We accept the null hypothesis H03A,

therefore, Visit of patient to pharmacy first for medication on

backache/bodyacheindication is independent of age of patient in

Mumbai.

From the above table we can prove the above mentioned sub hypothesis, For

sub hypothesis H03E if the p value is < or = 0.05 then we reject the null

hypothesis, here p value is 0.236 which is more than 0.05 and therefore null

hypothesis H03E is accepted. We accept the null hypothesis H03E therefore,

Visit of patient to pharmacy first for medication on

backache/bodyacheindication is independent of education of patient in

Mumbai.

Crosstabs-Diahorrea/Dysentery -Indication--Crosstabs of visit of patient to

pharmacy for medication on diahorrea/dysentery indication with age and

education of patient in Mumbai mentions 78% of patients do not visit

pharmacy first for diahorrea/dysentery indication in Mumbai.

From the table (table 4) we can prove the above mentioned sub hypothesis,

For sub hypothesis H03eAM if the p value is < or = 0.05 then we reject the

null hypothesis, here the p value is 0.014 which is less than 0.05 and

therefore null hypothesis H03eAM is rejected. We reject the null hypothesis

H04A, therefore, Visit of patient to pharmacy first for medication on

diahorrea/dysentery indication is dependent of age of patient in

Mumbai.

For sub hypothesis H04E if the p value is < or = 0.05 then we reject the null

hypothesis, here p value is 0.671 which is more than 0.05 and therefore null

hypotheisH04E is accepted. We accept the null hypothesis H04E, therefore,

Visit of patient to pharmacy first for medication on

diahorrea/dysenteryindication is independent of education of patient in

Mumbai.

48

Crosstabs-Low Grade Fever-indication-Crosstab of visit of patient to

pharmacy for medication on low grade fever indication with age and

education of patient in Mumbai mentions 51% of patients do visit pharmacy

first for low grade fever indication in Mumbai. Out of the total patients

surveyed, 64% patients belonging to age group 18 – 27 years prefer visiting

pharmacy first for headache indication and 55% of the patients having

degree prefer visiting pharmacy first for low grade fever indication in

Mumbai.

From the above (table 5)we can prove the above mentioned sub hypothesis,

For sub hypothesis H05A if the p value is < or = 0.05 then we reject the null

hypothesis, here the p value is 0.000 which is less than 0.05 and therefore

null hypotheisH05A is rejected. We reject the null hypothesis H05A, therefore,

Visit of patient to pharmacy first for medication on low grade

feverindication is dependent of age of patient in Mumbai.

For sub hypothesis H05E if the p value is < or = 0.05 then we reject the null

hypothesis, here p value is 0.445 which is more than 0.05 and therefore null

hypotheisH03fAM is accepted. We accept the null hypothesis H05E, therefore,

Visit of patient to pharmacy first for medication on low grade

feverindication is independent of education of patient in Mumbai.

Crosstabs-Indigestion/Flatulence-indication-Crosstab of visit of patient to

pharmacy for medication on Indigestion/Flatulence indication with age and

education of patient in Mumbai mentions 60% of patients do not visit

pharmacy first for headache indication in Mumbai.

From the above (table 6) we can prove the above mentioned sub hypothesis,

For sub hypothesis H06A if the p value is < or = 0.05 then we reject the null

hypothesis, here the p value is 0.042 which is less than 0.05 and therefore

null hypotheisH06A is accepted. We accept the null hypothesis H06A,

therefore, Visit of patient to pharmacy first for medication on

Indigestion/Flatulence indication is dependent of age of patient in

Mumbai.

For sub hypothesis H06E if the p value is < or = 0.05 then we reject the null

hypothesis, here p value is 0.695 which is more than 0.05 and therefore null

hypothesis H06E is accepted. We accept the null hypothesis H06E, therefore,

Visit of patient to pharmacy first for medication on

Indigestion/Flatulence indication is independent of education of patient

in Mumbai.

Visit of patient to pharmacy first for medication on various indications

in Mumbai:

Considering the level of significance as 5%, below table indicates the

relationship between two variables. Independent indicates the p value > 0.05

(level of significance) and Dependent indicates the p value < 0.05 (level of

significance).

49

Indication

Patient visiting

Pharmacy first for

OTC medicines

Age of

Patient

Education of

Patient

Headache 89% Independent Independent

Cough / Cold 75% Independent Independent

Backache

Bodyache 60% Independent Independent

Diahorrea/

Dysentery 22% Dependent Independent

Low Grade

Fever 39% Dependent Independent

Indigestion /

Flatulence 40% Dependent Independent

Table no: 7

Source: Researcher’s primary data

Headache was the most common indication for patient visit to pharmacy first

to get OTC medicines, apart from headache, cough/cold, body

ache/backache, low grade fever were other most common indications for

patients visit to pharmacy first to get OTC medicines.

There is no relationship between the age of patient and patients visit to

pharmacy first to get OTC medicines for indications like headache,

cough/cold and body ache/backache.There is no relationship between the

education of patient and patients visit to pharmacy first to get medicines for

indications like headache, cough/cold, body ache/backache and low grade

fever.

From the cross tabulation, it can be seen that youngsters (age group 18 to

27 years) and more educated (degree and post graduates) patients in Mumbai

prefer visiting pharmacy first for indications such as headache, cough/cold,

backache/bodyache, diahorrea/dysentery, low grade fever,

Indigestion/flatulence, vomiting.

Limitations of this Research:

The present study is confined to the geographical limits of Mumbai.Indian

“Psyche” of ‘knowing all’ attitude may be one of the limitations of getting

frank responses from respondents.Research was conducted in only onecity;

therefore these results cannot be projected throughout India. Present study

is based on limited sample size.

50

CONCLUSION:

Findings reveal that,people from all age groups in Mumbai prefer to visit

pharmacy first for indications such as headache, cough/cold and

backache/body ache, whereas, they do not visit pharmacy first for

indications like diahorrea/dysentery, low grade fever, Indigestion/flatulence.

Findings reveal, in Mumbai educated patients prefer visiting pharmacy first

for indications such as headache, cough/cold, backache/bodyache,

diahorrea/dysentery, low grade fever, Indigestion/flatulence. This indicates

educated people visit pharmacy first for all minor indications mentioned in

this research.

REFERENCES:

Adepu, R., & Nagavi, B. (2006). General practitioners' perception about the extended roles of community pharmacists in the state of Karnataka: A study. Indian J. Pharm. Sci. , 36-40. Bissell,P., Ward,P.R., Noyce, P.R. (2000). Mapping the contours of risk:

consumer perceptions of non-prescription medicines.J SocAdm Pharm, 136-

142.

Carmin Jane Gade MA, An exploration of Pharmacist-Patient communicative

relationship. 2003. The Ohio State University.

Caamano, F., Tome-Otero, M., Takkouche, B., & Gestal-Otero, J. J. (2005). Influence of pharmacists opinions on their dispensing medicines without requirement of a doctor's prescription. Gac Sanit , 9-14. Eades, C. E., Ferguson, J. S., & O’Carroll. (2011). Public health in community pharmacy:A systematic review of pharmacist and consumer views. BMC Public Health , 11:582. Hepler, C. D., & Strand, L. M. (1990). Opportunities and responsibilities in pharmaceutical care. American Journal of Hospital Pharmacy , 533.

Hughes, L., Whittlesea, C., Luscombe,D. (2002). Patient’s knowledge and

perceptions of the side-effects of OTC medication.J Clin Pharm Ther, 243-248.

Knowlton, C. H. (1990). The Practice of Community Pharmacy. In A. R. Gennaro, Remington's Pharmaceutical Sciences (p. 28). Philadelphia: Mack Publishing Company.

Neoh, F., Hassali, M., Shafie, A., & Awaisu, A. (2011). Nature and adequacy of information on dispensed medications delivered to patients in community pharmacies : a pilot study from Penang, Malaysia. Journal of Pharmaceutical Health Services Research . Pradhan, S. (2010). Retailing Management. New Delhi: Mc Graw Hill.

51

Spears, T. (2010, November 23). Community Pharmacists Play Key Role in Improving Medication Safety. Retrieved June 12, 2012, from Pharmacy Times: http://www.pharmacytimes.com/publications/issue/2010/November2010/CommunityPharmacistsMedSafety Upasani, S., Shah, V., Ingle, P., & Patil, P. (2011). The Assessment of Current Status of Retail Pharmacists of Amalner Tehsil in Khandesh Region of Maharashtra. IJPI's Journal of Hospital and Clinical Pharmacy , 37-38.

Wazaify, M., Sheilds, E., Hughes, C. M., & McElnay, J. C. (2005). Societal

perspectives on over-the-counter (OTC) medicines. Family Practice , 170-176

52

A Study on Back Testing of Direction Neutral Option Strategy

on Nifty Options

By

Chirag Babulal Shah*

Assistant Professor at Indian Education Society’s Management College

and Research Centre

Abstract

Derivatives are revolutionary instruments. Derivatives are supposed to be

used as a hedging tool, and pass on the risks to the willing speculator. The

biggest advantage of Derivative instruments is the leverage it provides.

However, the retail participants have not had a good overall experience of

trading in derivatives and the general investing community is still bereft of

the advantages of derivatives. This has led to an apprehension for derivatives

trading among the small retail market participants, and they prefer to stick

to the old methods of investing. The three main reasons identified are lack of

knowledge, the margining methods and the quantity of the lot size. The

brokers have also misled their clients and that has led to catastrophic

results. The retail participation in the derivatives markets has dropped down

dramatically.

This study has back tested a few option strategies. It has been observed that,

trading these strategies for a long period of time, yields good results. The

back testing has been done on Bull Call Spreads and Bear Put Spreads and

on Iron Condor strategies. The strategies have yielded very high Return over

Risk in a period of seven years. However, since the strategies involve trading

multiple options, some bought and some sold the SPAN margin and

Exposure margins drastically increases the Initial investment.

An introduction of a separate trade book for Bull Call Spreads and Bear Put

Spreads will be helpful to retail participants.

Keywords:

Derivatives, Nifty, Option Strategies, Bull Call Spreads, Bear Put Spreads

Introduction:

Option Strategies as a long term investment is unthinkable for the public at

large, since the brokers have always sold derivative products as highly

leveraged and a speculative product. A product where there is quick money

and where long term view means keeping the contract till the expiry date.

Most people don’t understand option strategies and hence trade naked

options just like they trade shares. However, they are mostly not aware of the

53

factors affecting the option price, i.e. Time to expiry, Implied Volatility and

lastly the direction of the market movement.

Eventually, when a trader is right in his view, he exits at small profits, but

when he is wrong, he waits till the option expires at zero, hoping that his

trade will turn profitable. Thus even if the trader’s success ratio in taking a

view is favorable, he ends up making more losses than the profits.

SEBI has recently shown concern for the retail investors, and noted that they

are allured in trading derivatives because of the inbuilt leverage. Hence in a

recent move, SEBI has asked the exchanges to increase the lot size, which

attracts higher margin and hence keeps retail investors away from

speculative practices. The diagnosis, that retail participants are losing money

in derivatives is right, however the remedy of keeping them at bay is not

welcomed. Less retail participation, will lead to immature markets and the

market will be a playground for strong hands and algorithms, which may

lead to manipulation of the prices.

The study tries to prescribe a remedy to help retail investors by back testing

the results of a few option strategies as a long term investment method.

Traditionally, all asset classes have a linear payoff, in terms that an investor

can only buy the asset and wait for the prices to go up. If the price goes

down, there is a loss, and if the price goes up eventually, there is a profit.

However, options are instruments which will allow you to have different views

on the market and hence different payoffs. This is possible because there are

four types of trades that one can do with options.

1. Buy Call

2. Sell Call

3. Buy Put

4. Sell Put

Since the buyer has to pay an upfront premium to buy the right to exercise,

but not the obligation to honor the contract, the maximum loss is limited to

the premium paid. Hence when one buys the option, he pays upfront the

maximum possible loss. So there is no need of taking any initial margin.

However, when one sells an option, there is always a chance of unlimited

loss, and hence the exchange, through its SPAN calculator, tries to assess

the maximum loss in one day and collects it as SPAN margin. In any

uncertain event, there can be an extreme loss; hence the exchange charges

an extra extreme loss margin.

Prima facie the margin calculation system seems logical and fair. However,

when there is a combination of options, the payoff structure changes and

hence the margins should change. The SPAN calculator takes 16 risk arrays

for the entire portfolio of options in consideration, and the maximum loss

case scenario is the initial margin. For a strategy like a Bull call spread, in

54

which one call is bought and a call with a higher strike price is sold, the

maximum loss is the premium difference which is always positive. This

means that the maximum loss in the strategy is the premium paid. However,

since there is an option which is sold, the exchange would charge a short

option minimum charge.

Thus the total margin exceeds much higher than the maximum possible loss.

For the retail investor this is additional burden of investment.

The study will back test the result of a few strategies for 7 years, where the

margin is much higher than the maximum possible loss and calculate the

ROI. These strategies can be a useful tool for the retail investor, only if the

excess margin is avoided.

Within the current framework, it doesn’t seem possible that the regulator or

the exchange will waive off the short option minimum charge. An alternative

would be to introduce a separate trade book for Bull call spreads and Bear

put spreads. Here only the spread would be traded and hence there is no

question of a short option minimum charge.

Spread trading would be easy for retail investors as it will be lesser

complicated than trading naked options. The Spread trade book can run

parallel with the normal option trade book. Any discrepancy in pricing will

lead to a risk free arbitrage and hence equilibrium.

Separate spread trade books are currently present in one month and two

month futures, two month and three month futures, and, One month and

three month futures.

Literature Review

According to the Black and Scholes (1973) option pricingmodel, the option

price is determined only by five input factors. Bollen and Whaley (2004) find

evidence suggestingthat net buying pressure affects options’ implied

volatility, which suggests that optionprices are affected by demand and

supply. According to their research, there are more index putstraded than

index calls. However, the opposite is observed for individual stock

options.Their findings suggest that the index put buying pressure drives the

change in volatility ofindex options, while the stock call buying pressure

drives the change in volatility of stockoptions. Intuitively, the demand for

calls and puts would be different in rising and fallingmarkets. When the

market becomes more volatile, the increasing volatility results in higher

pricesfor both calls and puts.

Debashish and Mitra(2008) examined the lead and lag relationship between

the cash markets and derivatives markets and concluded that derivatives

markets led the cash markets. However other studies like Pradhan and Bhatt

(2009), Johansen (1988), Basdas (2009) have observed that in many

55

countries spot markets lead the derivatives markets. This ambiguity of which

market leads the other, has made it very difficult for retail traders to take

view and trade on prices.

Trennepohl and Dukes (1981) is among the earliest empirical research to test

option writing and buying return.

Merton,Scholes and Gladstein (1978) concluded that certain option strategies

like fully covered writing strategyhave been successful in changing the

patterns of returns and are not reproducible by any simple strategy of

combining stocks with fixed income securities.Covered strategy is a

combination of the stock with its respective option. The strategy can give

good returns in the long run compared to the traditional approach of long

term investing in stocks.

Green and Figlewski (1999) examine the forecast of stock volatility and

return of option writing. They find that at-the-money stock index calls have a

high probability of producing large losses, with larger losses for longer time

to maturity. Writing options with a delta hedge reduces the writer’s risk

exposure compared to naked writing, but risk is still considerable.The

practice of option writing has increased steadily in recent years, and

somepractitioners apply relatively complicated hedging techniques to manage

writing risks(Collins; 2007).

Research done by Bondarenko (2003), Jones (2006), and Coval and

Shumway (2001), examine the returns of strategies that involve puts and

calls. They report that strategies involving put options offer good returns and

that put options are more expensive than calls of comparable distance from

the money. Yet, little research has been done to explore the returns from

combinations, straddles, and collars.

Maheshwari(2013) concludes that market participants majorly retail

participants may not be experiencing efficient markets, due to lack of

education, liquidity and transaction charges. This is true in the current

scenario as retail traders and investors view options as a highly leveraged

instrument apt for speculating. However speculation does not always work

and these investors shy away from derivatives markets once they burn their

hands with leveraged losses.

Research Methodology:

The study will use secondary data on Nifty index stock options and check the

results of Bull Call Spread and Bear Put spread options strategy from the

period of Jan, 2008 to Dec, 2014. Secondary data of futures and options

prices are available on the website of www.nseindia.com

At the start of every Derivative series month, a 200 point Nifty bull call

spread strategy will be initiated and it will be squared off at the expiry price.

A 200 point Nifty bear put spread strategy will also be initiated separately at

56

the same time. The futures price on the opening of the current month will be

considered as the spot price.To determine the At the money (ATM) strike

price, the opening future price is taken as the reference point. The future

price is rounded off to the nearest 100th and that point is considered as the

ATM.

In a Bull Call Spread or a Bear Put spread option strategy, the maximum

profit and maximum loss is capped. There are no extreme loss case

scenarios. The Breakeven point is the net premium added/subtracted, to the

buying option strike price. Thus the strategy is easy to understand and

implement. The strategy needs to be held till expiry. If squared off earlier

during the life of the option, the profit or loss will be lesser than the

maximum possible.

In the study, the total cumulative premium outflow will be considered as the

investment and the net cumulative profit at the end of the 7 years will be

considered as the final profit.

Here we assume 3 cases:

1. An options trader is always bullish on the market every month as he

thinks the market will always go up in the long run. No matter what the

sentiments are, the trader will follow the strategy mechanically.

2. An options trader is always bearish on the market as he thinks the prices

are always higher than the value. No matter what the sentiments are, the

trader will follow the strategy mechanically.

3. An options trader does not have any directional view, but is sure the

market will move away from the start point. No matter what the

sentiments are, the trader will follow the strategy mechanically.

Hence we analyze bull call spread, bear put spread and iron condor strategy

respectively for 7 years.

The returns are then compared to

Considering the maximum cumulative loss at any point during 7 years

as investment.

The total margin required for the strategy as per exchange and SEBI

norms.

Objective of the study:

The main objective of this research study is to create a win-win situation for

the retail investors and the exchange. The study will focus on the need for a

separate trade book for option spreads The study will give retail investors a

chance to profit from options trading using basic strategies which they can

understand, rather than using complex models. The study will do a research

on actual market prices and prove that such a methodology is

possible.Options’ trading is perceived as complex and is considered as a tool

57

for only professionals. This study will focus on simplicity of trading option

strategies.

Significance of the study:

The study will highlight on the faulty margin calculation system used by

exchanges. Recently, SEBI has increased the lot size of derivative contracts to

keep retail participants away from the derivatives markets as they have been

making losses. The study will prove that retail participants can use option

strategies as a long term investment tool and make good return on

investment, if the margin calculation system is reviewed. Even, if the existing

system is not changed, at least if a separate trade book for Bull call spreads

and Bear put spreads is allowed, the small investor can benefit from it.

Assumptions and limitations of the research

Bull call spread is an option strategy created on the same underlying asset

by buying one call and selling a call of a higher strike price. The premium of

the bought call is always higher than the sold call, or else there will be a risk

free arbitrage.

Bear Put spread is an option strategy created on the same underlying asset

by buying one put and selling a put of a lower strike price. The premium of

the bought put is always higher than the sold put, or else there will be a risk

free arbitrage.

The Regulator, SEBI, and the exchanges are not aware that the Bull call

spread strategy and Bear put strategy has limited loss and limited profit, and

in any case, there cannot be more loss or profit.Even though there are

mandatory exams to be given by every trader, conducted by the regulator and

the exchanges, which explicitly mentions the payoff of both strategies, the

exchange feels the need to cover the extreme loss case scenario and take

excess margin amounts and penalize the trader if those margins are not paid.

The period from Jan, 2008 to Dec, 2014 has been a period when the

Indian stock markets have seen all the practically extreme scenarios.

The results are based on the past and hence not a guarantee for the

future. However, one can safely assume the markets will more or less

behave in the same way in the long run.

The transaction costs including the brokerage and taxes are not

included in the calculation as it may differ from broker to broker.

Back Testing Data and Analysis

Nifty options are considered in the study as they are most widely traded and

the most liquid. Bull call spreads and Bear put spreads of 200 points on the

Nifty are considered. Everyexpiry month is tabulated based on its first day.

58

The open is the open price on the last Friday of the previous calendar month

which also is the starting of the new series. Since the strategy has to initiate

at the ATM, the strike which is closest to the open price is considered open

strike. The close is the settlement price on the date of expiry. The spreads are

calculated by subtracting the received premium by selling option, from the

paid premium by buying option. The difference between the close price and

the open strike is the intrinsic value that will remain on the last day. Since

this strategy caps the profit at 200 points, any movement above 200 points

will yield the maximum profit.

The Analysis for Bull Call Spread is shown in table 1.

The Analysis for Bear Put Spread is shown in table 2.

The Analysis for Iron Condor Spread is shown in table 3.

Analysis and Findings

Looking at the data, one can observe that the market has behaved in quite

random manner. In some months there had been extreme movements and in

some there was no movement at all. The direction of the market has been up

in 46 months and down in 38 months from its starting point of the expiry

period. In these 84 months, markets have behaved in all risk scenarios and

hence it can be called an optimum sample for capital markets.

If one had initiated Bull Call spreads (200 pts) every month for 7 years (See

Table 1)

Profit at end of 7 years = Rs. 1150.70

Max cumulative loss at any point = Rs. 474.25

Max Cumulative profit at any point = Rs. 1213.66

Max Cash Investment = Rs. 546.60

Margin as per existing rules = Rs. 450.00 (per share)

(Can be paid in collateral)

Max Investment including margin = Rs. 996.60

If one had initiated Bear Put spreads (200 pts) every month for 7 years (See

Table 2)

Profit at end of 7 years = Rs. 224.55

Max cumulative loss at any point = Rs. 72.80

Max cumulative profit at any point = Rs. 762.80

59

Max Cash Investment = Rs. 167.80

Margin as per existing rules = Rs. 450.00 (per share)

(Can be paid in collateral)

Max Investment including margin = Rs. 567.80

If one had initiated both Bull Call and Bear Put spreads (200 pts) together

making an Iron Condor Spread every month for 7 years (See table 3)

Profit at end of 7 years = Rs.1375.26

Max Cumulative loss at any point = Rs. 0.00

Max Cumulative profit at any point = Rs. 1375.26

Max Cash Investment = Rs. 128.70

Margin as per existing rules = Rs. 890.00 (per share)

(Can be paid in collateral)

Max Investment including margin = Rs. 1018.70

Conclusion:

The study is done with a mechanical approach and still the yield is quite

high. If human aspects such as intellectual analysis, news flows, exits at the

right time before expiry, etc. are used, the net profit can be considerably

increased.

For a person who thinks the market will go up in the long run, and hence is

always bullish on the market, using the bull call spread consistently, ends

up with a decent ROI.

For a person who wants to be bearish on the market all the time, using Bear

put spreads consistently gives fair ROI.

For a person who believes that the direction of the market is hard to predict,

but is sure that the market will move away from its start point, can do both,

Bull call spread and Bear put spread, thus creating an Iron condor strategy.

This strategy has shown fantastic results.

All strategies discussed have good ROIs if compared to the actual premium

investment. But if one considers the entire margin that is required for the

strategy, the ROIs fall down drastically.

Hence, if there is a separate trade book for option spreads, there will be no

need for the high margin investments, and one can take advantage of the

option strategies.

60

Having separate trade book for option spreads will allow the investor to do a

single trade rather than two trades for a strategy. This will bring down the

burden of expenses like brokerage and taxes. It will also eliminate the

execution loss between two trades.

A separate trade book for option spreads will attract retail clients who would

like to passively trade in options. Thus the retail participation can increase,

leading to a matured market.

Scope and policy implications:

The study shows the need for a change in the existing margining system. If

the existing system is difficult to change, introducing a separate trade book

for option spreads can do the work. The study proves that options can be

used as a long term investment tool, which can give decent returns on

investment. This study can be used by brokers, exchanges and regulators to

bring back confidence among retail participants who have developed a phobia

for the derivatives markets. Increased retail participation will result in much

more mature markets and price discovery across all asset classes will

improve. It will also dissuade manipulation of asset prices. The study will

also discourage unnecessary speculation and abuse of the excessive leverage

inbuilt in derivative instruments like options.

Appendix 1 = Bull Call Spread

Date

Open

Open

Expiry

Diff of

Expiry

Close Call

Spread

Call

net P/l

Call

Strike

Price

Date

Price

and open

strike Cumulative

28-Dec-07 6100 6 080.00 5133.25 -966.75 60.8 -60.8 -60.8

01-Feb-08 5100 5 121.85 5271.5 171.5 78.5 93 32.2

29-Feb-08 5200 5 225.10 4828.7 -371.3 60 -60 -27.8

28-Mar-08 4900 4 885.00 5002.2 102.2 93 9.2 -18.6

25-Apr-08 5000 5 021.90 4841.2 -158.8 94 -94 -112.6

30-May-08 4900 4 879.00 4308.45 -591.55 90 -90 -202.6

27-Jun-08 4100 4 136.35 4332.05 232.05 88 112 -90.6

01-Aug-08 4300 4 270.00 4218.2 -81.8 84 -84 -174.6

29-Aug-08 4300 4 291.00 4115.35 -184.65 66.7 -66.7 -241.3

26-Sep-08 4100 4 108.90 2689.35 -1410.65 80.15 -80.15 -321.45

30-Oct-08 2900 2 825.55 2757.85 -142.15 116.35 -

116.35 -437.8

28-Nov-08 2700 2 701.20 2913.35 213.35 85.4 114.6 -323.2

26-Dec-08 3000 2,973.40 2823.7 -176.3 76.7 -76.7 -399.9

30-Jan-09 2800 2,770.20 2785.65 -14.35 74.35 -74.35 -474.25

27-Feb-09 2800 2,758.70 3082.7 282.7 72.35 127.65 -346.6

61

27-Mar-09 3100 3,071.00 3473.9 373.9 83.2 116.8 -229.8

04-May-09 3600 3,621.00 4336.95 736.95 86.1 113.9 -115.9

29-May-09 4400 4,365.00 4241.8 -158.2 76.95 -76.95 -192.85

26-Jun-09 4300 4,299.00 4571.15 271.15 80 120 -72.85

31-Jul-09 4600 4,631.10 4688 88 85.65 2.35 -70.5

28-Aug-09 4700 4,705.00 4986.5 286.5 85.4 114.6 44.1

25-Sep-09 5000 4,958.00 4750.25 -249.75 85 -85 -40.9

30-Oct-09 4800 4,845.00 5005.3 205.3 82.2 117.8 76.9

27-Nov-09 4900 4,918.00 5202.3 302.3 87.3 112.7 189.6

01-Jan-10 5200 5 225.00 4867.2 -332.8 85.55 -85.55 104.05

29-Jan-10 4800 4 826.15 4860.1 60.1 68 -7.9 96.15

26-Feb-10 4900 4 867.00 5260.65 360.65 103 97 193.15

26-Mar-10 5300 5 276.00 5254.1 -45.9 65 -65 128.15

30-Apr-10 5300 5 263.80 5004 -296 68.05 -68.05 60.1

28-May-10 5000 5 025.00 5320.55 320.55 100 100 160.1

25-Jun-10 5300 5 298.00 5408.75 108.75 92.5 16.25 176.35

30-Jul-10 5400 5 394.80 5477.7 77.7 78.5 -0.8 175.55

27-Aug-10 5500 5 460.50 6030 530 66 134 309.55

01-Oct-10 6100 6 065.00 5987.7 -112.3 66.85 -66.85 242.7

29-Oct-10 6100 6 050.00 5800 -300 65.75 -65.75 176.95

26-Nov-10 5800 5 845.65 6102.95 302.95 93.4 106.6 283.55

31-Dec-10 6100 6 131.00 5604.2 -495.8 87.9 -87.9 195.65

28-Jan-11 5600 5 617.00 5265.3 -334.7 91.5 -91.5 104.15

25-Feb-11 5300 5 327.10 5824.2 524.2 84.4 115.6 219.75

01-Apr-11 5900 5 865.10 5784 -116 79.8 -79.8 139.95

29-Apr-11 5800 5 789.80 5402.15 -397.85 87 -87 52.95

27-May-11 5400 5 415.00 5644.1 244.1 77.9 122.1 175.05

01-Jul-11 5700 5 700.20 5492.7 -207.3 69 -69 106.05

29-Jul-11 5500 5 479.90 4841.75 -658.25 71 -71 35.05

26-Aug-11 4900 4 855.30 5019.4 119.4 81 38.4 73.45

30-Sep-11 5000 4 999.80 5181.95 181.95 92 89.95 163.4

26-Oct-11 5200 5 241.15 4755 -445 97.85 -97.85 65.55

25-Nov-11 4800 4 750.00 4648.6 -151.4 75.1 -75.1 -9.55

30-Dec-11 4700 4 689.90 5161.4 461.4 73.45 126.55 117

27-Jan-12 5200 5 201.00 5488.25 288.25 62.2 137.8 254.8

24-Feb-12 5500 5 532.00 5177 -323 93.55 -93.55 161.25

30-Mar-12 5200 5 246.00 5186.65 -13.35 94.55 -94.55 66.7

27-Apr-12 5200 5 200.00 4916.25 -283.75 91.9 -91.9 -25.2

01-Jun-12 4900 4 908.50 5150.75 250.75 88.95 111.05 85.85

29-Jun-12 5200 5 215.30 5043.25 -156.75 63.2 -63.2 22.65

27-Jul-12 5100 5 144.45 5306.9 206.9 80.1 119.9 142.55

31-Aug-12 5300 5 321.00 5652.95 352.95 76.3 123.7 266.25

28-Sep-12 5700 5 714.90 5704.7 4.7 69 -64.3 201.95

26-Oct-12 5700 5 711.10 5828.05 128.05 74.8 53.25 255.2

30-Nov-12 5900 5 891.10 5874.2 -25.8 61 -61 194.2

62

28-Dec-12 5900 5 932.50 6037.25 137.25 79.65 57.6 251.8

01-Feb-13 6100 6 068.95 5692.45 -407.55 55.65 -55.65 196.15

01-Mar-13 5700 5 718.95 5676.5 -23.5 68.05 -68.05 128.1

05-Apr-13 5700 5 716.35 5910.05 210.05 70.29 129.71 257.81

26-Apr-13 5900 5 919.00 6124.2 224.2 72.85 127.15 384.96

31-May-13 6100 6 119.00 5683.9 -416.1 72.3 -72.3 312.66

28-Jun-13 5800 5 761.15 5907.35 107.35 62 45.35 358.01

26-Jul-13 6000 5 955.00 5416.75 -583.25 69 -69 289.01

30-Aug-13 5400 5 400.00 5883.85 483.85 85 115 404.01

27-Sep-13 6000 5 951.25 6294.9 294.9 80.75 119.25 523.26

01-Nov-13 6300 6 315.05 6087.05 -212.95 77.9 -77.9 445.36

29-Nov-13 6200 6 162.00 6279.35 79.35 72.8 6.55 451.91

27-Dec-13 6300 6 340.00 6069.2 -230.8 67 -67 384.91

31-Jan-14 6100 6 115.00 6238.85 138.85 73.75 65.1 450.01

28-Feb-14 6300 6 265.40 6646.2 346.2 60.1 139.9 589.91

28-Mar-14 6700 6 708.60 6837.05 137.05 74.35 62.7 652.61

25-Apr-14 6900 6 900.00 7238.9 338.9 92.2 107.8 760.41

30-May-14 7300 7 275.50 7497.95 197.95 66.85 131.1 891.51

27-Jun-14 7600 7 550.00 7723.75 123.75 69.25 54.5 946.01

01-Aug-14 7700 7 686.05 7952.75 252.75 70.2 129.8 1075.81

01-Sep-14 8000 8 021.20 7902.25 -97.75 72.4 -72.4 1003.41

26-Sep-14 8000 7 956.00 8166.6 166.6 67.65 98.95 1102.36

31-Oct-14 8200 8 234.95 8493 293 88.7 111.3 1213.66

28-Nov-14 8600 8 576.10 8182.75 -417.25 62.95 -62.95 1150.71

Appendix 2 = Bear Put Spread

Date

Open

Strike

Price

Open

Expiry

Date

Price

Diff of

Expiry

Close

and open

strike

Put

Sprea

d

Put net

P/l

Put

Cumulative

28-Dec-07 6100.00 6 080.00 5133.25 (966.75) 67.90 132.10 132.10

1-Feb-08 5100.00 5 121.85 5271.50 171.50 101.15 (101.15) 30.95

29-Feb-08 5200.00 5 225.10 4828.70 (371.30) 83.90 116.10 147.05

28-Mar-08 4900.00 4 885.00 5002.20 102.20 76.05 (76.05) 71.00

25-Apr-08 5000.00 5 021.90 4841.20 (158.80) 82.00 76.80 147.80

30-May-08 4900.00 4 879.00 4308.45 (591.55) 60.10 139.90 287.70

27-Jun-08 4100.00 4 136.35 4332.05 232.05 55.00 (55.00) 232.70

1-Aug-08 4300.00 4 270.00 4218.20 (81.80) 67.00 14.80 247.50

29-Aug-08 4300.00 4 291.00 4115.35 (184.65) 71.00 113.65 361.15

26-Sep-08 4100.00 4 108.90 2689.35 (1410.6

5) 70.30 129.70 490.85

30-Oct-08 2900.00 2 825.55 2757.85 (142.15) 75.05 67.10 557.95

28-Nov-08 2700.00 2 701.20 2913.35 213.35 80.00 (80.00) 477.95

26-Dec-08 3000.00 2,973.40 2823.70 (176.30) 55.20 121.10 599.05

30-Jan-09 2800.00 2,770.20 2785.65 (14.35) 74.60 (60.25) 538.80

27-Feb-09 2800.00 2,758.70 3082.70 282.70 79.90 (79.90) 458.90

63

27-Mar-09 3100.00 3,071.00 3473.90 373.90 74.00 (74.00) 384.90

04-May-09 3600.00 3,621.00 4336.95 736.95 90.00 (90.00) 294.90

29-May-09 4400.00 4,365.00 4241.80 (158.20) 89.00 69.20 364.10

26-Jun-09 4300.00 4,299.00 4571.15 271.15 90.00 (90.00) 274.10

31-Jul-09 4600.00 4,631.10 4688.00 88.00 89.00 (89.00) 185.10

28-Aug-09 4700.00 4,705.00 4986.50 286.50 77.45 (77.45) 107.65

25-Sep-09 5000.00 4,958.00 4750.25 (249.75) 78.00 122.00 229.65

30-Oct-09 4800.00 4,845.00 5005.30 205.30 61.25 (61.25) 168.40

27-Nov-09 4900.00 4,918.00 5202.30 302.30 72.00 (72.00) 96.40

01-Jan-10 5200.00 5 225.00 4867.20 (332.80) 64.70 135.30 231.70

29-Jan-10 4800.00 4 826.15 4860.10 60.10 100.00 (100.00) 131.70

26-Feb-10 4900.00 4 867.00 5260.65 360.65 75.00 (75.00) 56.70

26-Mar-10 5300.00 5 276.00 5254.10 (45.90) 67.05 (21.15) 35.55

30-Apr-10 5300.00 5 263.80 5004.00 (296.00) 66.10 133.90 169.45

28-May-10 5000.00 5 025.00 5320.55 320.55 58.60 (58.60) 110.85

25-Jun-10 5300.00 5 298.00 5408.75 108.75 56.95 (56.95) 53.90

30-Jul-10 5400.00 5 394.80 5477.70 77.70 60.20 (60.20) (6.30)

27-Aug-10 5500.00 5 460.50 6030.00 530.00 66.50 (66.50) (72.80)

01-Oct-10 6100.00 6 065.00 5987.70 (112.30) 95.00 17.30 (55.50)

29-Oct-10 6100.00 6 050.00 5800.00 (300.00) 73.00 127.00 71.50

26-Nov-10 5800.00 5 845.65 6102.95 302.95 58.30 (58.30) 13.20

31-Dec-10 6100.00 6 131.00 5604.20 (495.80) 55.60 144.40 157.60

28-Jan-11 5600.00 5 617.00 5265.30 (334.70) 76.45 123.55 281.15

25-Feb-11 5300.00 5 327.10 5824.20 524.20 85.00 (85.00) 196.15

01-Apr-11 5900.00 5 865.10 5784.00 (116.00) 74.00 42.00 238.15

29-Apr-11 5800.00 5 789.80 5402.15 (397.85) 73.75 126.25 364.40

27-May-11 5400.00 5 415.00 5644.10 244.10 67.35 (67.35) 297.05

01-Jul-11 5700.00 5 700.20 5492.70 (207.30) 70.00 130.00 427.05

29-Jul-11 5500.00 5 479.90 4841.75 (658.25) 67.00 133.00 560.05

26-Aug-11 4900.00 4 855.30 5019.40 119.40 80.50 (80.50) 479.55

30-Sep-11 5000.00 4 999.80 5181.95 181.95 63.45 (63.45) 416.10

26-Oct-11 5200.00 5 241.15 4755.00 (445.00) 55.00 145.00 561.10

25-Nov-11 4800.00 4 750.00 4648.60 (151.40) 80.85 70.55 631.65

30-Dec-11 4700.00 4 689.90 5161.40 461.40 69.90 (69.90) 561.75

27-Jan-12 5200.00 5 201.00 5488.25 288.25 61.90 (61.90) 499.85

24-Feb-12 5500.00 5 532.00 5177.00 (323.00) 61.60 138.40 638.25

30-Mar-12 5200.00 5 246.00 5186.65 (13.35) 57.40 (44.05) 594.20

27-Apr-12 5200.00 5 200.00 4916.25 (283.75) 61.65 138.35 732.55

01-Jun-12 4900.00 4 908.50 5150.75 250.75 64.50 (64.50) 668.05

29-Jun-12 5200.00 5 215.30 5043.25 (156.75) 62.00 94.75 762.80

27-Jul-12 5100.00 5 144.45 5306.90 206.90 59.00 (59.00) 703.80

31-Aug-12 5300.00 5 321.00 5652.95 352.95 56.25 (56.25) 647.55

28-Sep-12 5700.00 5 714.90 5704.70 4.70 61.30 (61.30) 586.25

26-Oct-12 5700.00 5 711.10 5828.05 128.05 58.80 (58.80) 527.45

30-Nov-12 5900.00 5 891.10 5874.20 (25.80) 63.00 (37.20) 490.25

28-Dec-12 5900.00 5 932.50 6037.25 137.25 55.70 (55.70) 434.55

01-Feb-13 6100.00 6 068.95 5692.45 (407.55) 67.30 132.70 567.25

01-Mar-13 5700.00 5 718.95 5676.50 (23.50) 64.80 (41.30) 525.95

05-Apr-13 5700.00 5 716.35 5910.05 210.05 54.80 (54.80) 471.15

26-Apr-13 5900.00 5 919.00 6124.20 224.20 55.15 (55.15) 416.00

31-May-13 6100.00 6 119.00 5683.90 (416.10) 57.00 143.00 559.00

28-Jun-13 5800.00 5 761.15 5907.35 107.35 65.60 (65.60) 493.40

26-Jul-13 6000.00 5 955.00 5416.75 (583.25) 78.25 121.75 615.15

30-Aug-13 5400.00 5 400.00 5883.85 483.85 64.50 (64.50) 550.65

27-Sep-13 6000.00 5 951.25 6294.90 294.90 76.45 (76.45) 474.20

01-Nov-13 6300.00 6 315.05 6087.05 (212.95) 64.90 135.10 609.30

29-Nov-13 6200.00 6 162.00 6279.35 79.35 84.20 (84.20) 525.10

64

27-Dec-13 6300.00 6 340.00 6069.20 (230.80) 59.10 140.90 666.00

31-Jan-14 6100.00 6 115.00 6238.85 138.85 61.15 (61.15) 604.85

28-Feb-14 6300.00 6 265.40 6646.20 346.20 55.80 (55.80) 549.05

28-Mar-14 6700.00 6 708.60 6837.05 137.05 64.80 (64.80) 484.25

25-Apr-14 6900.00 6 900.00 7238.90 338.90 85.90 (85.90) 398.35

30-May-14 7300.00 7 275.50 7497.95 197.95 76.00 (76.00) 322.35

27-Jun-14 7600.00 7 550.00 7723.75 123.75 88.70 (88.70) 233.65

01-Aug-14 7700.00 7 686.05 7952.75 252.75 66.00 (66.00) 167.65

01-Sep-14 8000.00 8 021.20 7902.25 (97.75) 64.00 33.75 201.40

26-Sep-14 8000.00 7 956.00 8166.60 166.60 61.75 (61.75) 139.65

31-Oct-14 8200.00 8 234.95 8493.00 293.00 49.95 (49.95) 89.70

28-Nov-14 8600.00 8 576.10 8182.75 (417.25) 65.15 134.85 224.55

Appendix 3 = Iron Condor

Date

Open

Open

Expiry Diff of Expiry Close

Call

Spread

Put Spread

Call

net P/l

Put net P/l

Net P/L

Net

Strike

Price

Date Price

and open strike

Cumulative

28-Dec-07

6100

6 080.00

5133.25 -966.75 60.8 67.9 -60.8 132.1 71.3 71.3

01-Feb-08

5100

5 121.85

5271.5 171.5 78.5 101.15 93 -101.15 -8.15 63.15

29-Feb-08

5200

5 225.10

4828.7 -371.3 60 83.9 -60 116.1 56.1 119.2

5

28-Mar-08

4900

4 885.00

5002.2 102.2 93 76.05 9.2 -76.05 -

66.85

52.4

25-Apr-08

5000

5 021.90

4841.2 -158.8 94 82 -94 76.8 -17.2 35.2

30-May-

08

490

0

4

879.00 4308.45 -591.55 90 60.1 -90 139.9 49.9 85.1

27-Jun-08

4100

4 136.35

4332.05 232.05 88 55 112 -55 57 142.1

01-Aug-08

4300

4 270.00

4218.2 -81.8 84 67 -84 14.8 -69.2 72.9

29-Aug-08

4300

4 291.00

4115.35 -184.65 66.7 71 -66.7 113.65 46.9

5 119.8

5

26-Sep-08

4100

4 108.90

2689.35 -

1410.65 80.15 70.3

-80.15

129.7 49.5

5 169.4

30-Oct-08

2900

2 825.55

2757.85 -142.15 116.3

5 75.05

-116.3

5 67.1

-49.2

5

120.15

28-Nov-08

2700

2 701.20

2913.35 213.35 85.4 80 114.6 -80 34.6 154.7

5

26-Dec-

08

300

0

2,973.4

0 2823.7 -176.3 76.7 55.2 -76.7 121.1 44.4

199.1

5

30-Jan-

09

280

0

2,770.2

0 2785.65 -14.35 74.35 74.6

-

74.35 -60.25

-134.

6

64.55

27-Feb-09

2800

2,758.70

3082.7 282.7 72.35 79.9 127.6

5 -79.9

47.75

112.3

27-Mar-09

3100

3,071.00

3473.9 373.9 83.2 74 116.8 -74 42.8 155.1

04-May-

09

360

0

3,621.0

0 4336.95 736.95 86.1 90 113.9 -90 23.9 179

29-May-09

4400

4,365.00

4241.8 -158.2 76.95 89 -

76.95 69.2 -7.75

171.25

26-Jun-09

4300

4,299.00

4571.15 271.15 80 90 120 -90 30 201.2

5

31-Jul-09

4600

4,631.10

4688 88 85.65 89 2.35 -89

-

86.65

114.6

28-Aug-

09

470

0

4,705.0

0 4986.5 286.5 85.4 77.45 114.6 -77.45

37.1

5

151.7

5

65

25-Sep-09

5000

4,958.00

4750.25 -249.75 85 78 -85 122 37 188.7

5

30-Oct-09

4800

4,845.00

5005.3 205.3 82.2 61.25 117.8 -61.25 56.5

5 245.3

27-Nov-09

4900

4,918.00

5202.3 302.3 87.3 72 112.7 -72 40.7 286

01-Jan-10

5200

5 225.00

4867.2 -332.8 85.55 64.7 -

85.55 135.3

49.75

335.75

29-Jan-10

4800

4 826.15

4860.1 60.1 68 100 -7.9 -100 -

107.9

227.85

26-Feb-

10

490

0

4

867.00 5260.65 360.65 103 75 97 -75 22

249.8

5

26-Mar-

10

530

0

5

276.00 5254.1 -45.9 65 67.05 -65 -21.15

-86.1

5

163.7

30-Apr-10

5300

5 263.80

5004 -296 68.05 66.1 -

68.05 133.9

65.85

229.55

28-May-10

5000

5 025.00

5320.55 320.55 100 58.6 100 -58.6 41.4 270.9

5

25-Jun-

10

530

0

5

298.00 5408.75 108.75 92.5 56.95 16.25 -56.95 -40.7

230.2

5

30-Jul-10

5400

5 394.80

5477.7 77.7 78.5 60.2 -0.8 -60.2 -61 169.2

5

27-Aug-10

5500

5 460.50

6030 530 66 66.5 134 -66.5 67.5 236.7

5

01-Oct-10

6100

6 065.00

5987.7 -112.3 66.85 95 -

66.85 17.3

-

49.55

187.2

29-Oct-

10

610

0

6

050.00 5800 -300 65.75 73

-

65.75 127

61.2

5

248.4

5

26-Nov-10

5800

5 845.65

6102.95 302.95 93.4 58.3 106.6 -58.3 48.3 296.7

5

31-Dec-10

6100

6 131.00

5604.2 -495.8 87.9 55.6 -87.9 144.4 56.5 353.2

5

28-Jan-

11

560

0

5

617.00 5265.3 -334.7 91.5 76.45 -91.5 123.55

32.0

5 385.3

25-Feb-11

5300

5 327.10

5824.2 524.2 84.4 85 115.6 -85 30.6 415.9

01-Apr-11

5900

5 865.10

5784 -116 79.8 74 -79.8 42 -37.8 378.1

29-Apr-

11

580

0

5

789.80 5402.15 -397.85 87 73.75 -87 126.25

39.2

5

417.3

5

27-May-11

5400

5 415.00

5644.1 244.1 77.9 67.35 122.1 -67.35 54.7

5 472.1

01-Jul-11

5700

5 700.20

5492.7 -207.3 69 70 -69 130 61 533.1

29-Jul-

11

550

0

5

479.90 4841.75 -658.25 71 67 -71 133 62 595.1

26-Aug-11

4900

4 855.30

5019.4 119.4 81 80.5 38.4 -80.5 -42.1 553

30-Sep-11

5000

4 999.80

5181.95 181.95 92 63.45 89.95 -63.45 26.5 579.5

26-Oct-11

5200

5 241.15

4755 -445 97.85 55 -

97.85 145

47.15

626.65

25-Nov-11

4800

4 750.00

4648.6 -151.4 75.1 80.85 -75.1 70.55 -4.55 622.1

30-Dec-11

4700

4 689.90

5161.4 461.4 73.45 69.9 126.5

5 -69.9

56.65

678.75

27-Jan-12

5200

5 201.00

5488.25 288.25 62.2 61.9 137.8 -61.9 75.9 754.6

5

24-Feb-12

5500

5 532.00

5177 -323 93.55 61.6 -

93.55 138.4

44.85

799.5

30-Mar-12

5200

5 246.00

5186.65 -13.35 94.55 57.4 -

94.55 -44.05

-138.

6 660.9

27-Apr-12

5200

5 200.00

4916.25 -283.75 91.9 61.65 -91.9 138.35 46.4

5 707.3

5

01-Jun-12

4900

4 908.50

5150.75 250.75 88.95 64.5 111.0

5 -64.5

46.55

753.9

29-Jun-12

5200

5 215.30

5043.25 -156.75 63.2 62 -63.2 94.75 31.5

5 785.4

5

66

27-Jul-12

5100

5 144.45

5306.9 206.9 80.1 59 119.9 -59 60.9 846.3

5

31-Aug-12

5300

5 321.00

5652.95 352.95 76.3 56.25 123.7 -56.25 67.4

5 913.8

28-Sep-

12

570

0

5

714.90 5704.7 4.7 69 61.3 -64.3 -61.3

-125.

6

788.2

26-Oct-12

5700

5 711.10

5828.05 128.05 74.8 58.8 53.25 -58.8 -5.55 782.6

5

30-Nov-12

5900

5 891.10

5874.2 -25.8 61 63 -61 -37.2 -98.2 684.4

5

28-Dec-

12

590

0

5

932.50 6037.25 137.25 79.65 55.7 57.6 -55.7 1.9

686.3

5

01-Feb-13

6100

6 068.95

5692.45 -407.55 55.65 67.3 -

55.65 132.7

77.05

763.4

01-Mar-13

5700

5 718.95

5676.5 -23.5 68.05 64.8 -

68.05 -41.3

-109.35

654.05

05-Apr-13

5700

5 716.35

5910.05 210.05 70.29 54.8 129.7

1 -54.8

74.91

728.96

26-Apr-

13

590

0

5

919.00 6124.2 224.2 72.85 55.15

127.1

5 -55.15 72

800.9

6

31-May-13

6100

6 119.00

5683.9 -416.1 72.3 57 -72.3 143 70.7 871.6

6

28-Jun-13

5800

5 761.15

5907.35 107.35 62 65.6 45.35 -65.6 -

20.25

851.41

26-Jul-13

6000

5 955.00

5416.75 -583.25 69 78.25 -69 121.75 52.7

5 904.1

6

30-Aug-

13

540

0

5

400.00 5883.85 483.85 85 64.5 115 -64.5 50.5

954.6

6

27-Sep-13

6000

5 951.25

6294.9 294.9 80.75 76.45 119.2

5 -76.45 42.8

997.46

01-Nov-13

6300

6 315.05

6087.05 -212.95 77.9 64.9 -77.9 135.1 57.2 1054.

66

29-Nov-13

6200

6 162.00

6279.35 79.35 72.8 84.2 6.55 -84.2

-

77.65

977.01

27-Dec-

13

630

0

6

340.00 6069.2 -230.8 67 59.1 -67 140.9 73.9

1050.

91

31-Jan-14

6100

6 115.00

6238.85 138.85 73.75 61.15 65.1 -61.15 3.95 1054.

86

28-Feb-14

6300

6 265.40

6646.2 346.2 60.1 55.8 139.9 -55.8 84.1 1138.

96

28-Mar-

14

670

0

6

708.60 6837.05 137.05 74.35 64.8 62.7 -64.8 -2.1

1136.

86

25-Apr-14

6900

6 900.00

7238.9 338.9 92.2 85.9 107.8 -85.9 21.9 1158.

76

30-May-14

7300

7 275.50

7497.95 197.95 66.85 76 131.1 -76 55.1 1213.

86

27-Jun-

14

760

0

7

550.00 7723.75 123.75 69.25 88.7 54.5 -88.7 -34.2

1179.

66

01-Aug-14

7700

7 686.05

7952.75 252.75 70.2 66 129.8 -66 63.8 1243.

46

01-Sep-14

8000

8 021.20

7902.25 -97.75 72.4 64 -72.4 33.75 -

38.65

1204.81

26-Sep-14

8000

7 956.00

8166.6 166.6 67.65 61.75 98.95 -61.75 37.2 1242.

01

31-Oct-

14

820

0

8

234.95 8493 293 88.7 49.95 111.3 -49.95

61.3

5

1303.

36

28-Nov-14

8600

8 576.10

8182.75 -417.25 62.95 65.15 -

62.95 134.85 71.9

1375.26

Bibliography:

Black, F. And Scholes, M., 1973, The Pricing of Options and Corporate Liabilities. The Journal of Political Economy, Vol. 81, No.3, pp. 637-654.

67

Bollen, N. P. B. And Whaley, R. E., 2004, Does Net Buying Pressure Affect the Shape of Implied Volatility Functions? The Journal of Finance, Vol. 59, No. 2, pp. 711- 753. Bondarenko, O., 2003, Why are Put Options So Expensive?, Working Paper. Chidambaran, N. and Figlewski, S., 1995, Streamlining Monte Carlo Simulation with the Quasi-analytic Method: Analysis of a Path-Dependent Option Strategy, The Journal of Derivatives, 10, pp. 29-51. Collins, D., 2007, Khan Noorpuri: Perfect Option Writing, Futures, September, 36, 11, pp. 86.

Coval, J. and Shumway, T., 2001, Expected Option Returns. The Journal of Finance, Vol. LVI, No. 3, pp. 983-1009. Debasish, S. and Mishra, B. (2008), “Econometric Analysis of Lead-Lag relationship between NSE Nifty and its Derivative Contracts”, Indian Management Studies Journal, Vol.12 Figlewski, S., Chidambaran, N. K., and Kaplan, S, 1993, Evaluating the performance of the Protective Put Strategy, Financial Analyst Journal, 49, pp.46-56. Green, C. and Figlewski, S., 1999, Market Risk and Model Risk for a Financial Institution Hill, J., Balasubramanian, V., Gregory, K., and Tierens, I., 2006, Find Alpha via Covered Hull, J., Options, Futures and Other Derivatives, 7th ed, Pearson Prentice Hall. Merton, R. C., Scholes, M. and Gladstein, M., 1978, The Returns and Risk of Alternative Call Option Portfolio Investment Strategies. The Journal of Business, Vol. 51, No. 2, pp. 183-242. Maheshwari (2013) .Risk management through Options trading in Indian Market.

Merton, R. C., Scholes, M. and Gladstein, M., 1982, The Returns and Risks of Alternative Put-Option Portfolio Investment Strategies.The Journal of Business, Vol. 55, No. 1, pp. 1-55. Radoll, R.W., 2001, Hedging Covered Calls: A Way to Profit While Minimizing Risk. Futures, November, pp. 54-57. Tannous, G. and Lee-Sing, C., 2008, Expected Time Value Decay of Options: Implications for Put-Rolling Strategies. The Financial Review ,43, pp. 191-218. Trennepohl, G. and Dukes, W., 1981, An Empirical Test of Option Writing and Buying Strategies Utilizing In-the –money and Out-of-the-money Contracts. Journal of Business Finance & Accounting, 8, 2, pp. 185-202.

68

Whaley, R., 2002, Return and Risk of CBOE Buy Write Monthly Index. The Journal of Derivatives, winter, pp. 35-42. Mo Zhou, 2010, The Time Value of Options and Writing Strategies.

List of Reference Websites

www.proquest.com

www.investopedia.com

www.wikipedia.org/wiki/optionstrategies

www.theoptionsguide.com

www.nseindia.com

Falcon Software for charts.

69

Phoenix Udaan of Funsukh Wangdu

By

Gitesh Chavan* Dr. Ranjan Chaudhuri**

* Doctoral Scholar of National Institute of Industrial Engineering (NITIE)

**Associate Professor (Marketing) of National Institute of Industrial

Engineering (NITIE)

Abstract

Armstrong Automation , India’s leading Automation System Integrators was

located in Gurgaon. It provided detailed engineering services to its customers

located in Mumbai, Delhi, Pune, Chennai etc.

Mr. Premsukh Wangdu founded the company in 1985. Its engineering

services catered to varied industry verticals like Metals & Mining (M&M),

Food & Beverage (F&B), Oil & Gas (O&G) and other sectors. In 2007,

Funsukh Wangdu took charge of the business as the new CEO of the

Armstrong Automation.

The financials of Armstrong Automation in 2010 showed a net income of INR

35 Cr; which was the highest earning in its history. However 2011 and 2013

period seemed to be a rough patch for Armstrong Automation. This was

because of the heavy import of Chinese goods in India.

In 2014, a new Government was formed at the centre. Seeing the

encroachment on the Indian manufacturing sector, the government

formulated policy decisions against heavy imports from China, Taiwan etc by

imposing Anti Dumping Duties. On the other hand government also declared

“Make in India” as a domestic manufacturing renaissance policy in order to

enhance domestic manufacturing and increase FDI an Indian Manufacturing

and Automation sector.

The government norms had opened the flood gates for FDI in India.

How can Mr. Funsukh Wangdu write a success story for Armstrong

Automation after the rough patch of 2013? Should he join hands with an

International players to gain a winning edge is his dilemma.

Keywords: B2B Marketing, Solution Selling, Strategic Marketing, Industrial Buying Behaviour, Pricing.

70

Introduction

Armstrong Automation was one of India’s’ leading Automation System

Integrators located in Gurgaon. It provided detailed engineering services to its

esteemed customers which were located in various metropolitan cities of

India like Mumbai, Delhi, Pune, Chennai and Banglore etc. The company was

founded by Premsukh Wangdu in 1985. Its detailed engineering Automation

services catered to varied industry verticals like Metals & Mining (M&M),

Food & Beverage (F&B), Oil & Gas (O&G) and other sectors. . The current

CEO Funsukh Wangdu was closely monitoring the business growth every

quarter. The revenue growth and profits made him satisfied. In three decades

since 1985 the company had done substantial business and was one of the

leading and reputed System Integrators in Gurgaon. However the smooth

sailing did not last long, in 2011 Armstrong Automation experienced a rough

business patch which lasted from 2011 to 2013. This was due to the heavy

imports of Chinese EPC goods which flooded India and resulted in an

unstable business market scenario.

Exhibit 1 Imports –EPC component Industry 2008-14 (Authors Own, 2016)

The business demand of EPC service integrators like Armstrong Automation

was highly skewed. Funsukh like everybody was at a point in his life where

he hit a crossroad and had several options to address his business situation

and regularise business cash flow for the coming quarters. Firstly, Funsukh

was planning to restructure his pricing and grab the few floating business

71

opportunities. Secondly, to gain competitive advantage, he was also allured

to consider a B2B partnership with Western players from USA, Australia, UK,

and France who were venturing in India. Thirdly, he also was contemplating

for a long term business strategy by joining hands with low cost system

integrators of South East Asia; or, technologically collaborate with Germans

and Japanese players in order to enhance Armstrong Automations

innovation and technology capacities

Armstrong Automation , Gurgaon

2010 saw the golden age of automation in India with many small scales and

large scale industries flourishing, despite the huge prevalent competition

amongst local service providers. Under the leadership of Premsukh,

Armstrong Automation had made mammoth business advances and had

diversified its services in various industry fields, where automation and

detailed engineering services were required. The reason for this grand

success was the company culture which was cultivated and percolated by

Premsukh. All employees respected and abided the companies’ policies and

behaved professionally and ethically with their customers. Premsukh

considered this to be a huge achievement, as he had taken enormous efforts

to maintain good relations with his employees and also his customers.

However, being from the old school of thought Premsukh was a bit rigid to

accept the new trends in technology and the strategic shifts which had

globally affected the B2B Business in India.

Funsukh, the current CEO of Armstrong Automation was evaluating the

financial results of his company, quite satisfied as he evaluated the financial

results of his company. In the year 2011 the company had a net income of

120 million INR, this was the highest in the company’s history. (See Exhibit

1). Having done an MBA from Dukes in USA, Funsukh was good in taking

strategic decisions and understood the importance of changing with time. He

was flexible in his business approach of considering new options for business

growth. Prior to his B school exposure, Funsukh had climbed up his family

business ladder by training as an engineer, he had personally worked with

many customers on engineering projects in India before joining his B School.

Unlike Premsukh, who viewed globalization as a threat, Funsukh looked at

Global Business partnership as an opportunity to expand the company

horizons Globally.

Armstrong Automation Business Situation in 2013 Appointment of new

Government at the centre in 2013, changed the dynamics of Manufacturing

and Automation business in India. The government norms had opened the

flood gates for FDI in India and thus developed economies like USA and

Australia were considering India as a destination to collaboratively grow their

business as a third world destination. “Make in India” gave a thrust to

unorganised system integrators and small players in India, this helped them

to expand and grow during this present renaissance period. Seeing the

72

encroachment on the Indian manufacturing sector, the government

formulated policy decisions against heavy imports from China and low cost

manufacturing countries like Taiwan by imposing Anti Dumping Duties. On

the other hand government also declared “Make in India” as a domestic

manufacturing renaissance policy in order to enhance domestic

manufacturing and increase FDI an Indian Manufacturing and Automation

sector. The above changes in Government strategy gave rise to tough market

conditions on various industry verticals like O&G,M&M and F&B. Funsukh

had started to feel the heat of its fiercely competitive system integrators. The

small unorganised players from local regions of India came together to

address the business opportunity which external environmental and political

conditions had to offer. This symbiotic strategy of small unorganised system

integrators allowed them to offer services to many customers and also offer

the best competitive prices. Due to the above the local Indian business

market had become very cost sensitive. Funsukh realized that Armstrong

Automation was losing ground and something dramatic had to be done in

order to offer his customers the best market prices.

Global Partnership?

Armstrong Automation offered its detailed engineering Automation services

catered to varied industry verticals like Metals & Mining (M&M), Food &

Beverage (F&B), Oil & Gas (O&G) and other sectors. However Funsukh had a

vision to expand the horizon of his business by providing services to various

industry verticals like Pharmaceuticals , Chemicals, Utilities etc .(Exhibit 3).

The western companies were specialist in this new industrial domain and

this motivated Funsukh to think about partnering with them. Funsukh was

also aware that western countries are more process driven and different

worldwide geographies offer different value additions to business.Funsukh

knew that joining hands with South East Asian companies will help him in

understanding the low cost system integraton business model. Also

collaboration from Japanese and German players will help Armstrong

Automation to improve its innovation and technology capacities.

Closing Section – The Dilemma

Opening the flood gates of business opportunities for International, Western

players gave companies like Armstrong Automation an opportunity to partner

with regulated process and systems driven companies form like USA,

Australia, UK, France –imbibe and implement their; or, join hands with low

cost system integrators of South East Asia; or, technologically collaborate

with Germans and Japanese players in order to enhance Armstrong

Automations innovation and technology capacities is his dilemma. Funsukh

was finding it difficult to find and trust a new business partner who would

have the same business sensitivity and ethical belief to do business.

Funsukh faced a challange of not having core competency, cultural

understanding exposure and necessary organization skills to get work done

73

from an Outsourcing Business Relationship. This was because Armstrong

Automation was a family started business and it had not yet felt the need to

partner with any other firm for its business requirement. However Funsukh

had apprehensions about the competency of his resources and how they will

align themselves to a new company culture in case of a global partnership.

Funsukh also wondered if it would be right for him to continue business just

as it was or bring in Western or South East Asian Business partner. A walk

through Armstrong Automation history demonstrated their competency in

various industry verticals such as Chemicals, Pharmaceuticals, O&G, M&M

and F&B. ( Exhibit 2). Armstrong Automation had improved their engineering

services by standardizing them through ISO certification, Csia Certification

and ANAB, UKAS Certifications. ( Exhibit 4). The onshore and off shore

prices offered by Armstrong Automation were 65% cheaper than the rates of

Western and South East Asian companies. This prising allured the

international companies to join hands with Armstrong Automation and earn

profits through this partnership.

Funsukh had in mind a Global Business Delivery model shown in Exhibit 6

which strategically helped the partners to connect with each other and serve

various industry verticals. similar industry verticals and had a well proven

Global Business Delivery Model. (See Exhibit 6).

Exhibit 2 Evolution of Armstrong Automation (Authors Own)

74

Exhibit 3 a.Currently served Industry Verticals of Armstrong Automation (Authors Own)

Exhibit 3 b. Future Industry Verticals of Armstrong Automation (Authors Own)

Exhibit 4 CSia and ISO Certifications of Armstrong Automation (Authors Own)

75

Exhibit 5 Business model of Armstrong Automation (Authors Own)

Exhibit 6 Global Business Delivery Model (Authors Own)

How should Funsukh improve Armstrong Automations business in the current situation, should he join hands with the unorganized players in India, or work in collaboration with South East Asian countries or Western countries?

References

ACMA. (2014). Auto Component Industry in India: Growing strenghts and capabilities. New Delhi: ACMA.

Arun Kumarswamy, R. M. (2012). Catch up strategies in Indian Auto component Industry:Domestic firms responses to market liberalisation. Journal Of International Buisness studies , 368-395.

76

Corruption and its Compliance on International Business By

Dr. Harsh Pathak*

Practising Advocate in Supreme Court of India with specialization in International, Public and Private Laws

Abstract

This article provides an insight on the international phenomenon of

corruption, dealing with its existence, and whether compliance is higher with

Anti-Corruption laws or with corruption itself, resulting in anti-corruption

laws being much less effective than the legislators intended it to be and the

reasons for increasing demand worldwide for new governance standards,

higher compliance controls and other effective anti-corruption laws & policies

in light of rapid increase in corruption every year. This article further deals

with the diagnosis and measures to deal with the cause of corruption – the

short-comings in anti-corruption law – the reasons why corporations are

willing to face continuing legal risks and adverse publicity but still indulge in

corrupt practices and the extent of negative impact the prevailing levels of

corruption ultimately have on international business & trade.

Keywords: Anti-Corruption, Corruption, Corruption-Causes, Corruption Practices.

I Introduction: “..JUST as fish moving under water cannot possibly be found out either as drinking or not drinking water, so government servants employed in the government work cannot be found out (while) taking money (for themselves).”

'Kautilya' / Chanakya in Arthashastra (Economics) , Chapter IX. 370 -283 BCE

“..It’s Interesting that these themes of crime and political corruption are always relevant.”

Martin Scorsese

In light of the ever increasing international trade & business, one major

concern is corruption growing alongside it. In a race to be at a leading

position, ethics & morals take a backseat and the hunger for power & money

lead to invention of newer ways almost every day to pay and receive bribes

so as to put the person bribing in a position better than those not doing so,

whether such a person is more capable or not is a question paid no

attention to. As corporations and business entities grow larger, sometimes

77

with a monetary turnover many times that of small countries, the threat of

corruption in the business world, within the organization, in dealings with

other organisations and in dealings with the government is a looming and

growing threat. So is it that capability has little relevance as a qualifying

factor in today’s time and the race is only monetarily driven, the winner

predetermined, on basis of the highest payer? It would certainly seem so.

II. Definition & meaning of corruption: Corruption has been defined as1:

Per Oxford Dictionary:

“Dishonest or fraudulent conduct by those in power, typically involving

bribery.

Per Black’s Law Dictionary (2nd Edition):

Illegality; a vicious and fraudulent intention to evade the prohibitions of the

law. The act of an official or fiduciary person who unlawfully and wrongfully

uses his station or character to procure some benefit for himself or for

another person, contrary to duty and the rights of others.

As per Dictionary.com:

The word corrupt (Middle English, from Latin corruptus, past participle

of corrumpere, to abuse or destroy: com-, intensive pref. and rumpere, to

break) when used as an adjective literally means "perverted, made inferior,

affected, tainted, decayed".2

Earlier corruption was believed to be prevalent only in public offices, giving

corruption the meaning of use of public office for private gain3 but such a

narrow meaning does not hold in today’s time where corruption is prevalent

in public offices, private offices and commercial spheres of business and one

does not need any analysis or study in support of such contentions. One of

the most popular of the definitions of corruption, namely, ‘Corruption is the

abuse of power by a public official for private gain’ is too limited to be able to

include the levels and spheres corruption and corrupt persons have invaded.

Therefore, corruption maybe political, personal/private or commercial.

The basic difference is in the office, power and position, which are abused,

and aim of abuses. Political corruption may include bribery, use of

governmental offices for private enrichment and substitution by

particularistic for universalistic norms of public decision-making4. Personal

corruption may include violations of fiduciary duty, untruthfulness with

friends for personal gains. Commercial corruption may include suppliers

1 Retrieved on 27.06.2015 2 As defined in Maria Dakolias and Kim Thachuk, The Problem of Eradicating Corruption from the Judiciary: Attacking

Corruption in the Judiciary: A Critical Process in Judicial Reform, 18 Wis. Int'l L.J. 353, 355 (2000). 3 Id. at 356 4 "Glossary". U4 Anti-Corruption Resource Centre. Retrieved on 27.06.2015.

78

bribing agents to sell their products over other suppliers’ products,

organisations bribing media agencies for better publicity, et al. Corruption is

a crime of calculation, where the benefit received by the briber overweighs

the amount paid as bribe, which is the most seducing factor for everyone

ready to indulge is paying bribe. On the other hand, the receiver of bribe has

nothing to lose and all to gain from the bribe so received as if it is not this

person upon whom the benefit is vested by him then it would be so vested

upon someone else, who may not have paid bribe for it, leading to corruption.

Another aspect of corruption is the scale of corruption. Corruption can occur

on many different scales. There is petty corruption that occurs as small

favours between a small number of people within established social

frameworks and governing norms, usually occurring in developing nations

where public servants are significantly underpaid. Then there is the

corruption that affects the government on a large scale, i.e., grand corruption

or political corruption, occurring at the highest levels of government in a way

that requires significant subversion of the political, legal and economic

systems. Such corruption is commonly found in countries with authoritarian

or dictatorial governments and in those without adequate policing of

corruption by anti-corruption agencies. Then there is corruption that is so

prevalent that it is part of the everyday structure of society, i.e., systemic

corruption)5, which is primarily due to the weaknesses of an organization or

process. It can be contrasted with individual officials or agents who act

corruptly within the system. Factors which encourage systemic corruption

include conflicting incentives, discretionary powers; monopolistic powers;

lack of transparency; low pay; and a culture of impunity.6 Specific acts of

corruption include "bribery, extortion, and embezzlement" in a system where

"corruption becomes the rule rather than the exception.” 7 Scholars

distinguish between centralized and decentralized systemic corruption,

depending on which level of state or government corruption takes place; in

countries such as the Post-Soviet states both types occur.8

The difference between bribery and corruption is almost always ignored,

corruption being broader in scope than bribery. Bribery, as an act of

corruption, always deals with obtaining of illegal payments with abuse of

public or commercial office. 9 The payment need not always involve the

exchange of money (could be other gifts or advantages, such as membership

of an exclusive club or promises of scholarships for children, special favours

or influence).10 As an act, despite the form it takes, corruption is always a

5 Lorena Alcazar, Raul Andrade (2001). Diagnosis corruption. pp. 135–136.

6 Znoj, Heinzpeter (2009). "Deep Corruption in Indonesia: Discourses, Practices, Histories". In Monique Nuijten,

Gerhard Anders. Corruption and the secret of law: a legal anthropological perspective. Ashgate. pp. 53–54. 7 Legvold, Robert (2009). "Corruption, the Criminalized State, and Post-Soviet Transitions". In Robert I.

Rotberg. Corruption, global security, and world orde. Brookings Institution. p. 197 8 See John T. Noonan, Bribe (1987) for discussion of bribery.

9 Enery Quinones, What is Corruption, OECD Observer, (April 1, 2000), Pg. 23

10 Id.

79

two-way transaction; it requires a supply side (the briber) and a demand side

(the one who receives the bribe).11

After collapse of the era of communism in the Central and Eastern European

countries, there came the time of economic growth, globalization, new

developments in technology and possibilities of doing business around the

world and along came the obstacles of organised crime and corruption in

almost all parts of the world, which came to be ignored by some international

businesses, desperate only to enter new markets and establish themselves

there, paying whatever price asked of them, assuming that as long as they

ultimately recovered all price paid, along with profit, all such acts of bribery

with money and other things as justified, with no thought for future

consequences and damages. These acts not only impacted such notorious

international businesses willing to be corrupt but also the honest businesses,

even more so, as they were left high and dry, not being able to explore and

take advantages of the growing international trade & business. Now when the

international business community has finally come to realise the situation,

that the influence of corruption is ultimately negative, the problem of

corruption has reached a level where it is extremely difficult to curb and

control it, nonetheless, it is always better late than never and hence there is

urgent need, leading to urgent demand, for legislative actions and sanctions

to control the evil of corruption, especially in international business.

The ‘formula’ of corruption as was:

Corruption = (Monopoly + Discretion) – Accountability.

Has expanded and modified into:

Corruption = (Monopoly + Discretion) – (Accountability + Integrity +

Transparency)

11

Transparency International (2014). "Corruption Perceptions Index". Transparency International. Transparency

International. Retrieved 27.06.2015

80

Fig.1 Corruption & world map- Corruption perception index 2015

Since 1995, Transparency International (TI) publishes the Corruption

Perceptions Index (CPI) annually ranking countries "by their perceived levels

of corruption, as determined by expert assessments and opinion surveys.12

The CPI generally defines corruption as "the misuse of public power for

private benefit.13 The CPI currently ranks 175 countries "on a scale from 100

(very clean) to 0 (highly corrupt)." 14 The 2015 corruption perceptions

index measures the perceived levels of public sector corruption in 175

countries and territories around the world. Upon perusal of this index, it is

clear that no part of the world is devoid of the evil of corruption. So this

implores us to re-think as to how effective any anti-corruption legislation can

be and how aggressive the penalty will have to be to force corrupt people and

organisations to think before indulging in such practices as clearly, expecting

ethical, moral values and integrity to be doing the job has failed, hence, the

urgent need for penal legislation.

III. Causes of corruption:

Causes of corruption, in the author’s opinion, are so many that may not be

easily divided into limited groups. Low income, overburdening tax system,

weak law, no strict action taken against corruption due to corrupted people's

popularity, no transparency in dealing, low morals and integrity of people,

lust for power and money, and it can go on and on.... Specifically the author

will herein discuss two categories - socio-political and economic as being the

most affecting.

i. Socio-political causes of corruption are following: (a) weak governance of a

country; (b) dysfunctional government’s budgets; (c) delays in the release of

budget funds, especially when this involves pay; (d) closed political systems

dominated by narrow vested interests; (e) use of public office for private gain

by senior officials and political leaders; (f) divergence between the formal and

the informal rules governing behaviour in the public sector; (g) weak

accountability, (h) eroded ethical values, (i) inoperative financial management

systems resulting in no formal mechanism to hold public officials

accountable for results; (j) low and declining civil service salaries and

promotion unconnected to performance and a public service long dominated

by patron-client relationships, in which the sharing of bribes and favours has

become entrenched; (k) civil services receive inadequate supplies and

equipment; (l) lacking adequate legislative controls; (m) unenforced rules of

conduct and conflict of interest with ineffectual watchdog institutions such

as ombudsmen, auditors, and the media or their absence in toto; (n)

12 CPI 2010: Long methodological brief, p. 2 13 Transparency International (2015). "Corruption Perceptions Index 2015: In detail ".Transparency International.

Transparency International. 14 James P. Wesberry Jr., International Financial Institutions Face the Corruption Eruption, 18 J. INTL. L. BUS, 498, 509 (1998).

81

international sources of corruption associated with major projects or

equipment purchases.15

ii. Economic causes of corruption are closely connected with political ones. They

are following: (1) existence of trade restrictions leads to payments to

governmental officials in order to get import licenses which are in limited

quantity; (2) existence of a big number of government subsidies regulate

industrial policy, governmental officials strongly involved in price controls; (3)

existence of multiple exchange rate practice and foreign exchange allocation

schemes leads to attempts to gain the most advantageous rates by bribing

governmental officials; (4) low wages in civil services leads to extortion bribes

by civil servants to improve their financial situation; (5) natural resources

endowments leads to bribes of governmental official to get the best prices in

avoidance of government regulations.16

Iv. Consequences of corruption:

Corruption has very strong effect at political, social and economic life of a

country where it takes place. The existence of corruption in this case puts

some costs and some benefits of political, judicial, and bureaucratic actions

to different members of the society.17 In the field of International business

transactions the corruption has an impact at both sides: countries where

corruption takes place suffer from social, political and economic losses and

foreign companies, which are doing or trying to do business in those

countries, suffer from commercial losses.

In these countries there exist problems of undermined democracy by

effecting rights of ordinary people and small entrepreneurs, harm to the

environment, retarded development, eroding moral values of people,

disregard for the rule of law, increase in organised crime and money

laundering, lowers investment and retarded economic growth to significant

extent, loss of tax revenue, lower quality of infrastructure and public

services, distortion in the allocation of resources, weakening trade with other

countries; lowers growth.18

Commercial loses for the companies are that entrepreneurs suffer higher

risks and increased costs of doing business, international bribery results in

lost exports for those who play by the rules and seek to win contracts

through fair competition, the ability of businesses to operate in a

transparent, honest and predictable environment is lost, corruption hurts

suppliers of exporters and impedes international trade.19

V. Measures Taken By International Organizations:

15 Paolo Mauro, Why Worry About Corruption? 4-6 (1997). 16 See Henry R. Luce, The Role of The World Bank in Controlling Corruption, 29 Law & Pol'y Int'l Bus. 93, 95-97 (1997) for 6

situations where bribery plays role of the distributor of costs and benefits. 17 See Vito Tanzi, Roads to Nowhere:How Corruption in Public Investment Hunts Growth (1998). 18 DONALD J. JOHNSTON, Honesty is the Best Policy, OECD Observer (April 1, 2000), Pg. 3. 19

European Union, Resolution on the communication from the Commission to the Council and the European Parliament on a

Union policy against corruption, (May 21, 1997), COS/1997/2116, also available at http://wwwdb.europarl.eu.int/

82

On May 21, 1997, the European Commission adopted a Communication to

the Council and to the European Parliament on a Union Policy against

Corruption.20 The Communication provides member states with a consistent

and coherent policy on corruption in international trade and commerce well

as in other pertinent area. But the Communication does not have legal effect

of corruption. The Convention criminalizes bribery of E.U. officials as well

public officials of E.U. member states, but does not concern transnational

bribery with foreign officials of countries that are not members of the

European Union.21 The Convention on the Fight against Corruption involving

Officials of the European Community or Officials of Member States of the

European Union22, adopted on May 26 1997, criminalized active and passive

corruption of officials even where financial damage to the Union was not at

issue. The Joint Action of 22 December 1998 adopted by the Council on the

Basis of article K.3 of the Treaty on European Union, on corruption in the

private sector, constituted another important instrument.”23

Other international organisations have also been actively fighting against

growing corruption. The United Nations (U.N.) has drafted three very

important documents to deal with issues of corruption: United Nations

Declaration against Corruption and Bribery in International Commercial

Transactions24, International Code of Conduct for Public Officials25, and Code

of Conduct for Law enforcement Officials 26 . The Draft United Nations

Convention against Transnational Organized Crime, in its article 4 ter 27

envisages the criminalization of corruption when an organized criminal group

is involved. The Convention includes following acts: corrupt activities

involving an international civil servant, a foreign public official, a judge or

other official of an international court. The draft convention is aimed at

corrupt activities towards international officials. Additional international

measures were proposed for further combating corruption the 10th U.N.

Congress 28 included “develop, ratify and incorporate international

instruments to encourage strengthen anti-corruption programs at the

national level” and “Consider the development of a comprehensive United

Nations convention against corruption”.29

20 Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of Member States of

the European Union, May 26 (1997), O.J.C. 195, 26.5.1997 21

Id. 22 See, European Union, Joint Action of 22 December 1998 Adopted by the Council on the Basis of Article K.3 of the Treaty on

European Union, on Corruption in the Private Sector, 1998 O.J. (L358), also available at http://www.consilium.eu.int/ejn/vol_b/5_actions_communes/corruption/13909en.html 23 United Nations Declaration against Corruption and Bribery in International Commercial Transactions, U.N. GAOR, 51st Sess.,

U.N. Doc. A/RES/51/191 (Dec. 16, 1996) 24 United Nations International Code of Conduct for Public Officials, U.N. Doc A/RES/51/59 (Dec.12, 1996) 25 Code of Conduct for Law enforcement Officials General Assembly Resolution, U.N.Doc A/34/196 of (Dec. 17 1979) 26 Draft United Nations Convention against Transnational Organized Crime, U.N. Doc. A/AC.254/4/REV.6 27 10th United Nations Congress on the Prevention of Crime and The Treatment of Offenders, Vienna, 10-17 April 2000,

International cooperation in combating transnational rime: new challenges in the twenty-first century. Background paper for the

workshop on combating corruption prepared by the United Nations Interregional Crime and Justice Research Institute. U.N. DOC

A/conf.187/9,available at http://www.uncjin.org/Documents/10thcongress/10thcongress.html. 28 Id. 29 John Brademas and Fritz Heimann, Tackling International Corruption; No Longer Taboo, Foreign Affairs, October, 1998, Pg. 17

83

In 1996, president of the World Bank, James Wolfensohn, made combating

bribery a top priority. In 1997, with help of Transparency International, the

bank adopted a comprehensive program, including strong controls to prevent

bribery on World Bank-financed projects and assistance to governments to

promote reforms.30 It was decided that bank will fight corruption by following

means: (a) preventing fraud and corruption in World Bank-financed projects;

(b) assisting countries fight corruption, if and when they request it; (c)

seriously considering corruption in the World Bank's internal planning, in

the design of its projects and in its analysis and policy dialogue with

countries which lead to agreeing upon strategies; (d) supporting international

efforts against corruption.31

Transparency International is a non-governmental organization established in

1993 in Berlin. It has former governmental officials and business people as

its members. The main aim of this organization is to increase governments’

accountability and curbing both international and national corruption.32 The

most important actions by the Transparency International are information

gathering and raising public awareness. For this purpose, it publishes a

Corruption Perceptions Index33 that scores countries on ten-point scale, a

score of ten indicating a highly clean country and zero indicating a highly

corrupt country.34 TI also publishes a Bribery Index of Leading Exporting

Nations35 to uncover the sources of bribery by scoring countries on a ten-

point scale with a score of ten indicating negligible bribery and zero

indicating very high levels of bribery.36

The International Monetary Fund has been emphasizing the need for

transparency and other steps to curb corruption.37 On August 4, 1997, the

IMF Executive Board released guidelines, which instructed IMF staff to

consider corruption and accountability issues in its relations with borrowing

countries. The IMF guidelines are worded in the language of economists,

which makes them difficult to understand for laypersons. The Guidelines do,

however, officially recognize the problem of corruption for the first time. More

importantly, they call the attention of IMF staff to the threat that corruption

poses to international lending for development. The IMF guidelines

specifically seek to provoke greater attention to involvement in governance

issues by advocating policies and development of institutions and

administrative systems with aim to eliminate opportunity for corruption and

fraud. It also expresses great concern that corruption issues be addressed

only based on economic considerations within its mandate prohibiting IMF

30 James P. Wesberry Jr., International Financial Institutions Face the Corruption Eruption, 18 J. INTL. L. BUS, 498, 509 (1998).

at 501-502. 31 Transparency International, Welcome! at http://www.transperency.de/welcome.html (visited 27.06.2015) 32 See Transparency International Corruption Perception Index/Bribe Payers Index at

http://www.transparency.de/documents/cpi/index.html 33 See Id. 34 See Id. 35 See Id. 36 John Brademas and Fritz Heimann, Tackling International Corruption; No Longer Taboo, Foreign Affairs, October, 1998 37 James P. Wesberry Jr., International Financial Institutions Face the Corruption Eruption, 18 J. INTL. L. BUS, 498, 509 (1998).

84

adopt the role of an investigative agency or guardian of financial integrity in

member countries.38

The International Chamber of Commerce in Paris plays an important role in

encouraging the international business community to become active in

fighting corruption. The Chamber's focus is on improving corporate self-

regulation programs. The biggest Chamber’s achievement is the "Rules of

Conduct to Combat Extortion and Bribery".39 On 26 March 1996, the ICC's

Executive Board updated the Rules40 and expanded them to cover a broader

range of corrupt practices. The Rules deal with such issues as payments to

sales agents and other intermediaries, business entertainment and gifts, and

political contributions. They cover not only bribery of public officials but

bribery within the private sector as well. The basic approach of the Rules is

the need for action by international organizations, governments and by

enterprises, nationally and internationally, to meet the challenging goal of

greater transparency in international trade. The rues have also been revised

in 1999. Thus, extortion and bribery in judicial proceedings, in tax matters,

in environmental and other regulatory cases or in legislative proceedings are

now covered by the Rules.

World Trade Organization has also recently mobilized its efforts against

corruption. So far the only one legal action was taken by the WTO: the 1996

WTO Ministerial Declaration41 which included a provision establishing the

Transparency in Government Procurement working Group to study

transparency in government procurement practices. In 1999 the Group has

issued its first report.42 Within the WTO the most feasible possibility is to

revise the Agreement on Government Procurement, focusing on

anticorruption aspects. This agreement entered in force on January 1, 1996,

but only a few courtiers, mostly in industrial world, have adopted its

provisions.

The Foreign Corrupt Practices Act, 1977 (United States of America), prohibits

American companies from making corrupt payments to foreign officials for

the purpose of obtaining or keeping business. The Congress enacted the

FCPA to bring a halt to the bribery of foreign officials and to restore public

confidence in the integrity of the American business system. FCPA was

amended in 1988 and in 1998.43

38 International Chamber of Commerce, Rules of Conduct to Combat Extortion and Bribery (revised) at

http://www.iccwbo.org/home/statements_rules/rules/1999/briberydoc99.asp, (Visited 27.06.2015) 39

International Chamber of Commerce, Rules of Conduct to Combat Extortion and Bribery at

http://www.iccwbo.org/home/statements_rules/rules/1996/1996/briberydoc.asp, (Visited 27.06.2015). 40 See WTO Singapore Ministerial Declaration (Dec. 13 1996) at

http://www.wto.org/english/thewto_e/minist_e/min96_e/wtodec.htm (last updated 18/10/2000) 41 See WTO Report (1999) to the General Council (Oct.12, 1999) at http://www.wto.org/english/tratop_e/grpoc_e/tran99_e.htm. 42 See WTO Text of the Agreement on Government Procurement at

http://www.wto.org/english/tratop_e/gproc_e/agrmnt_e.htm 43 See Barbara Crutchfield George & Kathleen A. Lacey, A Coalition of Industrialized Nations, Dveloping Nations, Multilateral

Development Banks , and Non-Governmental Organizations:A Pivotal Complement to Current Anti-Corruption Initiatives, 33

Cornell Int’l L.J. 547 (2000) for discussion of the amendments. See also Stuart H. Deming, Foreign Corrupt Practices, 33 Int'l Law. 507 (Summer, 1999).

85

VI. International laws compliances:

Trans-national organisations are eager to spur growth by taking advantage of

economic growth, especially that of the developing economies such as South-

East Asia. Well-educated and lower-cost workforce and its promising market

may have little choice but to take a vigorous approach to Anti Corruption

Law compliance.

Vii. What next at legislative level:

Urgent need for accountability of Judiciary, legislative and executive

branches, as always was intended by the fore-fathers of nations wherein the

government system is divided into

the legislative, executive and judiciary branches in an attempt to provide

independent services that are less prone to corruption due to their

independence. Therefore, need for establishing an effective mechanism for

dealing with complaints made with regard to corruption with penalty that

acts as a deterrent and not merely a paper tiger. Anti-corruption legislation

needs to cover not only monetary bribes but also gifts, valuables, extended

hospitality and other benefits derived by acts of corruption. Anti-corruption

legislation needs to cover bribe as “speedy money” regularly paid for routine

governmental action.

Steps towards Compliance:

Transnational /National organisation(s) should create a culture of integrity and compliance by:

1) Due diligence;

2) Business Plan;

3) Anti Corruption compliance policy;

4) Internal monitoring mechanism;

5) Regular compliance training;

6) Whistleblower policy;

7) Conduct due-diligence on prospective business/partner.

8) Ensure that a comprehensive business plan is put in place at the start, to ensure that unanticipated regulatory hurdles do not result in incentive to engage in illegal activities.

9) Lay out a comprehensive anti corruption compliance policy with respect to all dealings with public servants, including guidelines for giving gifts and offering hospitality.

86

10) Set up an effective internal monitoring mechanism to check illegal acts by employees, and also ensure that incentives do not exist to engage in such illegal acts.

11) Conduct regular compliance training for employees of all levels, to sensitize them to anti-corruption laws and their consequences.

12) Establish and publicize a whistleblower policy to encourage reporting of illegal activities. Viii. Conclusion

The paradigm is “...Corruption exists in the world, but world is not a corrupt

society.” Clearly most people in the world are living in ignorance and are not

realising the urgency and cry for immediate action to control and curb

corruption, failure of which will be nothing less than a catastrophe. In order

for the anti-corruption legislation to work effectively, it is imperative that

people be made aware of the long-term consequences of such acts. When

even in a place like Europe, where people are generally found to be more

honest, with higher integrity and morals as compared to say South-east

Asian countries, the problem of corruption persists, one can easily imagine

the affect that corruption has on the people of these South-east Asian

countries, and if imagination is not enough, there is enough data in support,

easily available, which should be a lesson learnt by developed nations to

control the evil as early and as effectively as possible, so as to avoid an

uncontrollable situation. Corruption mostly affects developing countries in

political, social and economic aspects but at the same time it has a very

strong influence on foreign businesses as well.

The nature of the causes of corruption is already understood to a great extent

and the degree of effectiveness of the various measures initiated by the

political leaders to combat corruption is lagging behind. Even though Anti-

corruption is gaining more relevance as, simultaneous with increasing

enforcement of anti-corruption laws, nations have started to focus on

individual and corporate liability in cases of violation of anti-corruption laws,

the problem of corruption still persists enough to have adverse affects on the

general public all over the world.

Positively speaking, in the context of the far-reaching developments

internationally to curb corruption, it appears unlikely that the more corrupt

nations can act very differently and buck this trend, in the current context

wherein all these nations have entered into mutual obligations with several

countries to extend cooperation in respect of investigations and legal

proceedings and maybe it is only a matter of time but it a question that too

will have an answer in time. The public reporting of corruption cases is on

the rise and it seems the best time to put anti-corruption legislations and

mechanisms in place to control and eliminate the evil of corruption. In the

recent past, a number of sensational cases have grabbed media headlines,

including those involving the politicians, bureaucrats and top management of

87

the corporations, either been arrested or are under investigation on charges

of bribery. Practically, prosecutions against companies and officials are on

the rise. The continuing legal risks and adverse publicity for the corporations

involved should be used as an advantage to encourage anti-corruption

attitude.

Corruption is an ancient concept but always contemporary. Corruption is a

manifestation of administrative malpractices for purported economic gains

due to lack of political will and reforms. When a concept like corruption is

put in to practice, it’s bad for the socio-economic health of the nation and

warrants a determined politico-administrative intent to eliminate such

practices from the system, not merely to regulate. As nations and regional

groupings seek to implement stricter laws with respect to bribery and corrupt

practices, the legal risks faced by trans-national corporations are becoming

more complex. Scope and operation of anti-corruption laws is not restricted

to territorial boundaries. Anti-corruption compliance is a hot-button issue in

developing countries where trans-national corporations are increasing

presence.

As Chanakya said…..

Chanakya, is considered as the pioneer of the field of economics and political

science in India. Authored the ancient Indian political treatise called

Arthshastra (Economics), credited for establishment of the Maurya Empire,

the first empire in archaeologically recorded history to rule most of the Indian

subcontinent. Chanakya is often called the "Indian Machiavelli", although his

works predate Niccolo Machiavelli’s by about 1,800 years. Without a

corruption-free system, the Mauryan empire – which was the largest in

Indian history and the largest (in relative terms) the world has ever seen,

could never have arisen. ...“You can't build a MEGA EMPIRE if your

ministers, officials, police, and army is corrupt. TOTAL integrity is the

minimum requirement and high quality governance.

References

1. Barbara Crutchfield George & Kathleen A. Lacey, 2000, A Coalition of

Industrial Nations, Developing Nations, Multilateral Development Banks,

and Non-Governmental Organization: A Pivotal Complement to Current

Anti-Corruption Initiatives, 33 Cornell Int’l L.J. 547 (2000)

2. Enery Quinones, 2000, What is Corruption, OECD Observer

3. Heidenheimer, Arnold J. and Michael Johnston, 2002, Political

Corruption: Concepts and Contexts

4. Henry R. Luce, 1997, The Role of The World Bank in Controlling

Corruption,

5. James P. Wesberry Jr.,1998, International Financial Institutions Face the

Corruption Eruptions, 18 J. INTL. L. BUS, 498, 509

6. John Brademas and Fitz Heimann, 1998, Trackling International

Corruption; No Longer Taboo, Foreign Affairs,

88

7. John T. Noonam, 1987, Bribe

8. Legyold, Robert, 2009, “Corruption, the Criminalized State, and Post-

Soviet Transitions”.

9. Lorena Alcazar, Raul Andrade, 2001, Diagnosis corruption.

10. Maria Dakolias and Kim Thachuk, 2000, The Problem of Eradicating

Corruption from the Judiciary: Attacking Corruption in the Judiciary: A

Critical Process in Judicial Reform, 18 Wis. Int’l L.J. 353, 355.

11. Monique Nuijten Gerhard Anders, 2009, Corruption and the secret of law:

a legal Anthropological perspective. Ashgate

12. Paolo Mauro, 1997, Why Worry About Corruption?

13. Robert I. Rotberg, 2009, Corruption, global security, and world order.

14. Rose-Ackerman, Susan, 1999, Corruption and Government: Causes,

Consequences and Reform.

15. Stuart H. Deming, 1999, Foreign Corrupt Practices, 33Int’l Law.507

16. World Bank, 1997, Helping Countries Combat Corruption: The Role of the

World Bank.

17. Znoj, Heinzpeter, 2009, “Deep Corruption in Indonesia: Discourses,

Practices, Histories.”

89

A Study of BREXIT & it’s Impact on European Union

By

Jai Kotecha* Sagar Mehta** Lasha Chugh***

* CA & Faculty at Thakur Institute of Management Studies and Research

** Student of Thakur Institute of Management Studies and Research

*** Student of Thakur Institute of Management Studies and Research

Abstract

The study is about how the European Union is formed. The study shows that

how EU policies aim to ensure the free movement of people, goods, services,

and capital within the internal market, enact legislation in justice and home

affairs, and maintain common policies on trade. Corporate operating in the

transport equipment, food & beverages, textiles, electrical equipment’s and

chemical sector are most exposed due to trade linkages.

The study is about how the British exit impacts the European Union; this is

analyzed with the help of secondary data. It shows how BREXIT impact on

Trade, Agriculture, Employment along with its worldwide long term economic

impact.

Keywords:

BREXIT, European Union, House of Common

Introduction:

The European Union (EU) got its origin from European Coal and Steel

Community (ECSC) and European Economic Community (EEC). It was

formed after the world war II in 1951-1958 by the inner six countries namely

Belgium, France, Italy, Luxembourg, Netherlands and West Germany. EU

comprises of 28 state members that are primarily in Europe and is a unique

economic and political union. EU has developed an internal single market

through a standardised system of laws that apply in all member states, for

the free movement of people, goods, services and capital within market. EU

policies aim to enact legislation in justice and home affairs and maintain

common policies on trade.

European Union operates mainly according to the rules of law, where

everything it does is founded on treaties, voluntarily and democratically

90

agreed by is member countries. Institution of European Union- the European

Council, the Council of European Union, the European Parliament, the

European Commission, the court of Justice of European Union, the

European Central Bank, and the European Court of Auditors are the seven

principle decision-making bodies. Generally laws made by EU institutions are

mainly classified into two groups: those which come into force without the

necessity for national implementation which are known as regulations and

those which specifically require national implementation measures which are

known as directives.

The main objective of the European Economic Community is the development

of common market between its member states, subsequently becoming a

single market and a customs union between its member states. The single

market involves free movement of goods, capital, people and services within

the EU and as per the customs union there is an application of common

external tariff on all goods entering the market. The non-EU members can

participate in single market but cannot participate in the customs union.

Research methodology:

The study is quantitative in nature. We will be relying exclusively on

secondary sources of data. The methodology is used for analyzing the impact

of BREXIT on United Kingdom and the other members of European Union.

This report primarily focuses on finding out the working of European Union

as well as the overall impact on the decision of brexit.

Scope of the study:

The following are some of the objectives that we hope to accomplish during

the course of study.

To study the formation of European Union.

To study about the BREXIT.

To understand the impact of British exit on Trade, Agriculture,

Defence and the economy as a whole.

Significance of study/Literature review:

The research is to study the impact of BREXIT on United Kingdom as well as

the European Union as a whole. It tries to identify how the British exit

impacts on the free movement of people, goods, services and capital within

the member countries of European Union. Since there is no road map for the

exit of UK from European Union the study is completely dependent on the

existing information from House of Commons UK.

Limitation of study:

The major problem being faced is there is no policy framed by the UK

government setting out its BREXIT plan.

Hence the study is limited to the report by House of Commons UK.

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Time constraint will limit the extent & depth of the study.

BREXIT:

A process of United Kingdom (UK) to withdraw from the European Union (EU)

is commonly known as BREXIT. It is the result of June 2016 referendum in

which 51.9% voted to leave the EU. The separation process of UK from EU is

complex, causing political and economical changes for the UK and other

countries. On 2nd October 2016, British Prime Minister Theresa May

announced she would trigger Article 50 by the end of March 2017 which

would make the UK to leave EU by the end of March 2019. With the exit of

United Kingdom from European Union, it also opens the door for other

countries to leave European Union. This is one of the major fears of many

people around the world. In the meantime, UK remains a full member of

European Union.

The exit of United Kingdom will lead to negotiations about new relation with

European Union. The first step for the UK government is to inform the

European Union about the intention of withdrawal, and it is unlikely to

happen before the end of 2016. When such notification is sent by UK to EU it

will trigger the negotiation for withdrawal agreement. Until that negotiation is

done, the UK remains bound by EU law. Negotiating the withdrawal

agreement seems to be very challenging, in lights with substantial trade ties

between the UK and EU.

Impact of British Exit on Trade:

The EU Member States do not pay any tariffs on goods moving between them

and a common tariff is applied on the goods entering from Non-EU nations.

Through Common Commercial Policy (CCP) external trade relationships are

coordinated at EU level, since the EU members cannot operate their

independent trade policies. The EU Trade Commissioner plays an important

role as he acts as a negotiator in multilateral and bilateral trade talks with

European Parliament and the ministers of the member states called as the

EU Council making certain decisions regarding the negotiations and final

result. The principle of free trade in services between EU Member States is

also mentioned in the EU Treaties.

Though services make a very important contribution to the overall EU

economy, but the trade in services within the single market is much less as

compared to goods. EU is UK’s most important trading partner till now. In

2015 it accounted for 44% (£222 billion) of the UK goods and services exports

and 53% (£291 billion) of the UK imports. The UK’s imports are more from

EU as compared to exports. The UK’s new relations with the EU will range in

options from membership of the European Economic Area (EEA) to trading

under World Trade Organization (WTO) rules. If UK chooses EEA as their

option then it will be closest to EU membership and would largely maintain

access to the EU single market and would accept the free movement of

92

people and contribution to the EU’s budget. The UK will not have any direct

influence over EU rules if it chooses to be a member of EEA. If UK chooses to

be a member of WTO instead of EEA then it would bring a biggest change in

the current situations of EU as there would be no need to accept the free

movement of people or make EU budget contributions and trade between UK

and EU will be subject to tariffs and other barriers to trade. Other barriers to

trade are also called as non-tariff barriers to trade.

Impact of British Exit on Agriculture:

40% of the EU’s budget is related to agriculture and rural development

through the Common Agriculture policy (CAP). CAP provides an EU

framework of regulation for direct payments to farmers, market support

measures and rural development programs to support the wider rural

economy. BREXIT in all scenarios mean a departure from the Common

agriculture policy (CAP). The loss of the CAP and the future EU/UK trading

relationships raises lot of uncertainties for farmers in terms of income,

tariffs, commodity and consumer prices and environmental management

requirements in the future. EU farm subsidies just make up to 50-60% of

income. Previous government has said that CAP reforms have indicated that

UK government and developed administrations would not be able to match

the current levels of subsidy. Farming organizations are anxious about the

common market and migrant labor and how imports will be regulated.

Environmental groups are concerned about the overall level of funding agri-

environment schemes outside CAP and till when UK agriculture policy will be

supporting environmental goals. UK agriculture policy, UK farming and

landowning bodies are starting to set out their wish list for the future. They

are asking government to act quickly to reduce uncertainty and take the

opportunity to devise simpler approaches to farming regulation which

support competitiveness.

IMPACT OF BRITISH EXIT ON DEFENCE:

The UK is one of the strongest among all EU member states in terms of

Defence and arm forces. It has the ability to deploy an operational

headquarter and they are capable of taking command of a mission. Unless

the UK formally leaves the EU it will remain a part of Common Security and

Defence Policy (CSDP) planning structures and the EU military operations to

which UK has committed forces. Although the impact of BREXIT on UK

military will be minimal, in the long run UK's ability to influence or shape the

CSDP agenda will be significantly cut shorted. Since the UK is one of the

most largest and advanced military power in the EU in terms of manpower,

assets, capabilities and defence spending, EU has a disadvantage with fewer

manpower, assets, capabilities etc with the withdrawal of UK from EU. The

EU defence directives agreed in 2011 are retained in the withdrawal

agreement but the applicability of their provisions to the UK will not change.

The UK will have an impact on its procurement approach if UK chooses not

93

to follow the directives. UK has been one of the main driving forces behind

the development of CSDP.

Impact of British Exit on the European Economy:

The exit of United Kingdom (UK) from the European Union (EU) will not only

have an impact on trade, employment and agriculture but also on Foreign

Direct Investment (FDI), politics, GDP and migration laws. The effect on FDI

is uncertain as it mainly depends on the trade arrangements reached with

the EU and other countries. Access to the single market is an important

determinant of FDI. The UK may be able to establish a regulatory regime

more favorable to overseas investors which could offset the effect of its

departure from the EU. The UK will contribute to the EU’s budget till it is the

member state of EU. In 2015, the UK’s contribution was an estimated £8.5

billion which is around 1% of total public expenditure and equivalent to 0.5%

of GDP. Future contributions will depend on the arrangements for which UK

agrees. If UK chooses to be the member of EEA then it will likely to pay into

the EU budget.

The way in which BREXIT will have an impact on political scenario is that

there will be a potential loss of international political weight as UK leaves

European Union. The UK is one of the union’s most liberal countries and has

acted as a mediator in the Franco-German relationship. The departure of UK

can bring about the internal shifts in the EU’s relations. It will become more

difficult to pass the legislations if France and Germany don’t agree. It has

been noticed that there is also a nationalist push in the EU countries,

whereas Spain has noticed a regionalist push for independence. All these

happenings will give rise to the political uncertainty in the near future.

Impact of this will be more evident in non-euro zones as compared to euro

zones.

BREXIT will also have an impact on migration laws and this will directly

affect the business and economy, as it will reduce the overall number of

people moving to work in the UK. The UK’s exit is likely to reduce the

remittances of EU migrants to their home countries. In long term less

migration to the UK could benefit the EU. Currently UK is unable to impose

the limits on immigration from within the EU as there is a free movement of

labor and it stands as one of the fundamentals of EU. If UK refuses to sign

up for the free movement of people then it can impose its own control with

the EU/EEA immigrations as it currently does not follow it. If government

imposes a more restrictive immigration system for EU/EEA nationals then

the option would be to simply extend current rules of non-EU/EEA nationals

to all non-UK nationals.

Challenges of BREXIT:

The prices of British exports will increase as UK takes an exit from

EU.

94

The exit of UK will also result in the loss of economic activities and

production.

In extreme scenario UK would lose all the trade privilege arising from

EU membership.

There will be a reduction in cross border trade activities.

BREXIT may cause political damage and weaken Europe geopolitically.

BREXIT will cause migration of people from Europe.

Europe will also face a challenge of lower economic growth.

UK would lose their preferential access to the EU single market.

The free trade deal which EU negotiated with 53 countries, will no

longer apply to the UK.

Latest News:

Germany’s Finance Minister has said, the EU should offer Britain a

“reasonable” BREXIT deal because financial services offered by the

City of London benefit Europe as a whole.

The High Court has blocked a fresh legal challenge over BREXIT which

would have made the Article 50 fight "look like a walk in the park".

Judges refused to let the challenge go further at a short hearing at

London's Royal Courts of Justice.

The government has published an official policy document setting out

its BREXIT plans. The White Paper lays out the government's 12

"principles" including migration control and "taking control of our own

laws". The White Paper's publication comes after pressure from MPs

across the House of Commons. It sets out the themes of the

government's goals for its negotiations with the EU, as announced by

Prime Minister Theresa May.

Conclusion:

There will be a lot of challenges faced by UK to exit the European Union as it

will affect them economically and politically. Other members of the EU are

also affected by the decision of BREXIT as EU was formed basically to

develop an internal single market between the members of European Union.

With the decision of Britain to leave EU it impacts on Trade, Agriculture,

Defence and the economy as a whole. The UK’s new relations with the EU will

range in options from membership of the European Economic Area (EEA) to

trading under World Trade Organization (WTO) rules.

BREXIT will result into departure from the Common agriculture policy (CAP).

The loss of the CAP and the future EU/UK trading relationships will amount

into lot of uncertainties for farmers in terms of income, tariffs, commodity

and consumer prices and environmental management requirements in the

future

95

UK being one of the strongest country among all the other EU members in

terms of defence, the impact of BREXIT on UK military will be very minimal

and short term as to the other countries of EU. Also BREXIT will impact on

migration laws which will directly affect the business and the economy.

References:

BREXIT: Impact Across Policy Areas (House of Commons Library-BRIEFING

PAPER-Number 07213, 26 August 2016)

https://europa.eu/european-union/about-eu/eu-in-brief_en

http://www.bbc.com/news/uk-politics-32810887

http://www.independent.co.uk/news/world/europe/brexit-latest-german-

finance-minister-eu-should-not-punish-britain-wolfgang-schaeuble-

tagesspiegel-a7562936.html

https://en.wikipedia.org/wiki/Brexit

https://en.wikipedia.org/wiki/European_Union

https://en.wikipedia.org/wiki/History_of_the_European_Union

https://en.wikipedia.org/wiki/Member_state_of_the_European_Union

96

Trends and Scope of Commercial Lending in India

By

Neel Jani

Post Graduate student (PTMFM) at DSIMS

Abstract

Using the data from Reserve Bank of India between 2014 to 2016, the paper

investigates the correlation between administrative support & policy easing

and the reasons for enterprises in India to avail funds via the ECB and FCCB

route. We would look at the various numerical data points from the

Handbook of Indian Economy 2015-16 and study the lending patterns of the

financial sector and its contributions and performance over the said period.

For this paper, the Median and Mean were calculated for all data which was

referred to. The analysis of the paper suggest that the prime focus areas for

the financial sector in the coming years, the improvements in their current

business practices, the scope and the viability of the projects for which they

lend and the improvements for the financial sector from a operational model

perspective.

Keywords:

Commercial Lending, ECB, FCCB

Introduction

Ravi Kishore in his book Strategic Financial Planning (Taxmann, 2nd Edition)

defines strategic planning as a systematic analytical approach which reviews

the business as a whole in relation to its environment with the object of the

following:

I. Developing an integrated, coordinated and consistent view of the route the

company wishes to follow

II. Facilitating the adaptation of the organization to environmental change.

He goes on to say that within Strategic Financial Management; strategic

planning is long-range in scope and has its focus on the organization as a

whole. The concept is based on an objective and comprehensive assessment

of the present situation of the organization and the setting up of targets to be

achieved in the context of an intelligent and knowledge anticipation of

changes in the environment.

The strategic financial planning involves financial planning, financial

forecasting, provision of finance and formulation of finance policies which

should lead the firm’s survival and success. The strategic financial planning

show enable the firm to judiciously allocate funds, capitalization of relative

strengths, mitigation of weaknesses, early identification of shifts in

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environment, counter possible actions of competitor, reduction in financing

costs, effective use of funds deployed, timely estimation of funds

requirement, identification of business and financial risks etc.

To add to this, Ravi Kishore also elaborates that financial sector reforms aim

at promoting a diversified, efficient and competitive financial sector with

ultimate objective of improving the allocative efficiency of available resources,

increasing the return on investments and promoting the an accelerated

growth of real sectors of economy.

Richard A Brealey, Stewart C Myers, Franklin Allen, Pitabas Mohanty in their

book Principles of Corporate Finance (Tata McGraw Hill, 10th Edition) give an

answer to a very pertinent question – Do Firms Rely Too Much on Internal

Funds? According to Brealey et al., internal funds (retained earnings plus

depreciation) cover most of the cash needed for investment. It seems that

internal financing is more convenient than external financing by stock and

debt issues.

Sonia Singh and Hiranmay Saha in their research paper Centralization of

Microfinance (published: The IUP Journal of Entrepreneurship Development,

Vol. VIII, No. 2, 2011) stated that according to Consultative Group to Assist

the Poor (CGAP) (2006), microfinance means the supply of loans, savings,

and other basic services to the poor people.

It is based on the principle of helping people so that they are able to help

themselves. In the development of entire region the increased income earned

by micro-entrepreneurs is the most important precondition. Thus

microfinance enables poor but economically active people to increase their

income, and thus helps in generating some additional savings which may be

used for further development.

Sumit K. Majumdar and Kunal Sen in their research paper Debt in the

Indian Corporate Sector: Its effects on firm strategy and performance

(Published: Decision, Vol. 3, No.3, December, 2010) stated that the

relationship between a firm’s capital structure and its strategic behaviour

has been a question that has dominated much of the literature on corporate

governance and corporate finance.

The role of different types of debt has been completely downplayed. This is a

particular omission in the emerging economy context, given that most firms

in such economies tend to be highly leveraged. Also, there are several

varieties of debt to be raised in emerging economies.

The theoretical literature suggests that, similar to its application in the case

of equity ownership, some types of debt holders such as banks may be able

to exert a stronger monitoring role on managers of firms than other types of

debt holders such as arm’s-length lenders.

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Literature Review

Ashish Kumar Rastogi, P.K. Jain, Surendra S. Yadav in their research paper

‘Debt Financing in India in Public, Private and Foreign Companies’ studied

the debt financing decisions and practices of the public sector, private sector

and foreign controlled companies in India. It also found out the impact of the

liberalized environment, in terms of the significant changes, if any, in the

phase-2 (1998-2003) of the liberalized business scenario vis-à-vis phase-1

(1992-1997).

The study also indicated that the profile of debt financing has significantly

changed during the period covered by the study. Ownership control was

observed to be a significant factor in influencing the debt financing decisions

in terms of its composition and maturity structure. Long- term debt was

found more prevalent among public sector firms vis-à-vis private sector

business group firms. Interestingly, foreign controlled firms made the least

use of long-term debt among the three types of ownership groups.

The paper also suggested that sound financial management practices expect

corporate firms to have unused debt capacity for future needs in order to

preserve operating flexibility, particularly in circumstances when fund

requirements are sudden and unpredictable. The paper suggests that private

sector business group firms have been able to reduce the proportion of debt,

particularly current liabilities and provisions; however, they have failed to

reduce, to a large extent, the share of borrowed funds. This may have vital

implications on their debt financing decisions in times to come. Hence, it

becomes imperative to study the objectives with which Indian firms – private,

public or otherwise raise funds via the credit route since the operational

model of businesses in India evolved with the macro-economic environment.

Sumit K. Majumdar, Kunal Sen in their research paper ‘Debt in the Indian

Corporate Sector: Its Effects on Firm Strategy and Performance’ examined

the effects of debt structure on firms’ strategic behaviour and performance

for the Indian economy, which is one of the largest and most important

economies of the world today.

Majumdar and Sen also stated that India has a large number of firms in the

industrial sector, with a variety of ownership structures, for example state

versus private ownership, foreign versus domestic ownership and firms

which are members of business groups and those which are independent.

Debt financing is particularly important in India. Unlike in the West, where

debt ratios are more than half of nominal equity capital values are considered

high, in India very high debt to equity ratios are the norm.

They found that there is arm’s-length debt such as debentures and fixed

deposits are most likely to have a positive impact on firm diversification and

advertising expenditures. Borrowing from term-lending institutions was most

likely to have a dampening effect of diversification and spending on

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advertising. Finally, reliance on fixed deposits was most likely to have a

positive impact on firm profitability.

Their results suggested that firms which were the most aggressive and

dynamic such as those who have diversified their investments or engaged in

higher intensity of advertising are more likely to see funds from private

arm’s-length creditors, even though these types of funds tend to be more

expensive than loans from banks and term-lending institutions. They also

found reliance on unsecured arm’s-length debt such as fixed deposits make

these firms more profitable.

On the other hand, more conservative firms which have chosen not to

diversify as much or engage in high levels of advertising expenditures have

relied on bank and term-lending institution debt. The fact that these

institutions tend to be mostly state-owned in India suggest that these

institutions have chosen not to be risk-taking with their lending, in spite of

the informational and monitoring advantages they hold over arm’s-length

creditors.

Overall, their results suggested that the pervasive presence of state owned

financial institutions in the Indian financial sector has inhibited risk taking

by Indian firms and has not had a positive impact on their performance, in

spite of the informational and monitoring advantages that commercial banks

and term-lending institutions possess. This leads to study the risks

associated with the lending businesses of banks; the philosophy by which

investments were made into businesses by the financial sector firms in India

and the scope & performance of banks in their lending businesses with the

given risks.

Sonia Singh and Hiranmay Saha in their research paper ‘Centralization of

Microfinance’ found out that microfinance is one of the most effective

techniques for poverty alleviation in developing and underdeveloped

countries. According to them, if microfinance is managed, organized and

planned well, then it should be supported by non-governmental

organizations and socially-oriented investors with low default rates,

encouraging greater commercial involvement because of attractive returns.

Through microfinance it will be easy to include this section of society into the

economic mainstream to achieve balanced growth, which is critical for social

development and economic prosperity.

Singh and Saha also state that the key context of the paper is how poor

people can easily avail the micro-financial services under one umbrella in the

fastest way. While discussing the factors and the theoretical position

associated with innovation in microfinance, this paper also brought out the

missing link between the lender and borrower in the Indian context. As per

the authors, filling of this gap is a precondition for poverty reduction on

account of the influence of new paradigm of institutional viability under

commercial microfinance. This led us to study the performance of the

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mainstream financial sector into investing in the rural areas of India which is

mainly based on agriculture and associated activities. Also, another factor

linked to the agriculture is the micro, small and medium-sized enterprise

(MSME) industries which is fast spreading as a sustainable alternative model

for banks to invest in.

The book ‘Strategic Financial Management’ authored by Ravi M. Kishore

discusses in detail the various financial planning strategies adopted by

companies for raising funds. It provides comprehensive details of the various

inorganic and organic methods of growth for businesses and the role

financial institutions in providing the required capital. This book helps us to

understand the various reasons and modes of fund-raising done by

businesses.

The book ‘Principles of Corporate Finance’ co-authored by Richard A Brealey,

Stewart C Myers, Franklin Allen and Pitabas Mohanty describe the theory

and practice of corporate finance. The book spells out why the management

needs to bother with theory while focusing on the practical aspects. The book

provides a theory of taking an inclusive decision which takes into

consideration the changing factors in the economy and its impact on the

businesses. This book helps us to understand the changes brought in by RBI

while letting businesses raise funds via ECB and FCCB route.

The Reserve Bank of India issued a circular on the External Commercial

Borrowings (ECB) Policy – Revised Framework (A.P. DIR Series – Circular No.

32) provided a more detailed note on the changes in the fund-raising method

along with the industry guidelines and specific orientations. With the help of

this circular, we try to understand the trends and reasons of the ECB and

FCCB funds raised by Indian business.

Objectives

To understand the various reasons and modes of raising funds via debt by

businesses.

The changes incorporated by RBI in raising funds via ECB (External

Commercial Borrowing) and FCCB (Foreign Currency Convertible Bond) route

by businesses.

The borrowing trends in ECBs and FCCBs from May 2014 onwards.

The current and comparative trend of investments made by the domestic

financial sector into various other sectors for gaining a view on Indian

economy.

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The risks associated with lending from a lender’s perspective.

Methodology

For this research paper, the data collection was done via two ways:

1. RBI External Commercial Borrowings Monthly Data – May 2014 to July

2016.

2. RBI – Handbook of Statistics on Indian Economy 2015-16.

For the first point of RBI External Commercial Borrowings Monthly Data –

May 2014 to July 2016; please note the following:

There is no specific methodology applicable. Hence, we have done the

following:

A consolidated table of the monthly numbers of ECB/FCCB from the RBI

website from May 2014 to July 2016. (Source Link:

https://rbi.org.in/Scripts/ECBView.aspx)

A sum of the amounts sourced through automatic and approval route.

A pivot table with the unique reasons for the requirement of funds.

A corresponding pie diagram using the Pivot functionality within Microsoft

Excel.

For the data from the RBI – Handbook of Statistics on Indian Economy 2015-

16; below are the tables which were analyzed for this paper:

Table 64: Consolidated Balance Sheet of Scheduled Commercial Banks

(Excluding Regional Rural Banks).

Table 39: Sector-wise Cost Overrun of Delayed Central Sector projects (End-

March).

Table 61: Scheduled Commercial Banks' Direct Finance to Farmers according

to size of land holdings (outstanding) - Short-term and long-term loans.

Table 60: Scheduled Commercial Banks' Direct Finance to Farmers according

to size of land holdings (disbursements) - Short-term and long-term loans.

Table 65: Gross and Net NPAs of scheduled commercial banks - Bank group-

wise.

Table 178: Industry-wise Deployment of Bank Credit.

Table 177: Deployment of Bank Credit by Major Sectors.

Table 63: Scheduled Commercial Banks’ advances to Agriculture –

Outstanding.

Table 62: Scheduled Commercial Banks’ advances to Small-Scale Industries

and Allied Services – Outstanding.

Table 181: Commercial Bank Survey.

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There are two methodologies applied – Median and Mean. These are based

from Ashish Kumar Rastogi, P.K. Jain and Surendra S. Yadav; in their paper

Debt Financing In India In Public, Private And Foreign Companies.

The Median and Mean were calculated in an Excel file since there could be

two or three ways of calculation of same and hence, we have applied the

Microsoft Excel formulae – MEDIAN (for calculating Median) and AVERAGE

(for calculating Mean).

Analysis

For the data on ECBs and FCCBs, below is the pie chart showing the

allocation of funds:

The results clearly reflected that while banks continue to face risks both from

NPA perspective, credit worthiness of borrowers and repayment discipline;

they (the banks) have upped their lending businesses with a bullish view on

Indian economy. The credit businesses have grown manifold to support

multiple industries – both in priority and non-priority sectors.

Businesses have also sourced funds via ECBs and FCCBs to support their

growing respective businesses. This method of raising funds especially gained

momentum in the wake of easing of norms with respect to automated and

approval routes.

The banks have their work cut out in terms of focusing lending businesses

towards, Agro, MSME and SSI sector which requires financial support since

many of them work on sound business fundamentals and a sustainable

business model.

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It needs to be seen how the banking sector accommodates the growing

expectations of businesses and government while RBI works on easing of

rules/procedures to aim at an increased financial inclusion and supporting

the growth of industries at a micro/rural level.

To conclude, in a global economy which is facing a slowdown, India has

emerged as a favourable destination for investors to come and invest in.

While the mainstream focus remains on that, the Indian financial sector

faces challenges in terms of reformative practices, technology and inclusion.

The government of the day introduced radical financial reforms from

November 8 onwards, the results of which should soon be visible, the focus

for the banks should be on expanding reach, connecting people & businesses

to the mainstream & regulated banking and providing funds for expansion of

worthy businesses in India.

Recommendations

Although the numbers suggest that since the sourcing of funds via ECBs and

FCCBs has been increasing over time, it may or may not mean that

businesses are growing. While the numbers suggest the possible reasons of

sourcing funds for new business projects, modernization of existing projects

and importing of capital goods indicating a growing and expanding

manufacturing base; banks need to delve deeper into companies, before

lending more, who take this route for general corporate purposes, working

capital and rupee expenditure LOC which suggest that the short-term

financing of companies is not optimum. At the same time, it also reflects

inaccurate expense and credit management.

From the RBI Handbook of Statistics on Indian Economy 2015-16, following

would be the recommendations;

Before lending hook, line and sinker into upcoming infrastructure projects,

there has always been a trend of cost overruns in core infrastructural sector,

due to many issues, mainly operational and legal reasons.

o A keen eye needs to be maintained for mapping future growth of the

company and the projects which they have initiated on this aspect.

The numbers for outstanding amounts in farm credit deployment are

worrisome with its own reasons such as – natural limitations and limited

progress made in the last few decades.

o Although the credit deployment is being supported by the RBI and the

government, the banks need to up their lending business into the farm and

farm-related business sectors.

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To tackle the NPA problem plaguing the Indian banking sector, RBI wrote off

bad debts worth more than Rs. 1 lakh crore. Currently, there are even talks

of setting up of a bad bank. However, these cannot solve the larger issue

which is detailed due diligence and credit worthiness checks of borrowers

which should be the prime focus of banks.

o In this regard, Indian banks could emulate other international banks such as

JP Morgan Chase or alike. Banks should also be prompt in taking strict

action towards delinquent accounts.

The industry-wise deployment of credit shows that commercial banks are

deploying credit in areas which are on the focus of the government since the

last three years, viz., infrastructure, oil, metals, power, etc. With the

economy in its revival phase as suggested by many, this sector would surely

be on the watch-out list of banks, investors, administrators, et al.

o To add to these, the renewable energy is fast gaining momentum in India

with a recent study suggesting that India is the fourth largest producer of

renewable energy in the world. This sector should be on the top priority of

banks and financial institutions from a lending perspective.

The sectoral deployment of credit reflects the export sector needing reforms

in its process of revival. The current numbers are not really encouraging,

however, any investment made currently could not provide the expected

returns without the impetus from the RBI and/or the government.

o The manufacturing businesses are expected to grow more in the next few

years by way of various projects and that would be a factor to consider from

a lending perspective in the coming times which would ultimately benefit the

export sector.

Credit societies and scores of middlemen had their roles reduced with the

rapid expansion mainstream and regulated banking reaching the rural and

interior regions of India. The challenge for banks would be to compete

against the likes of microfinance institutions such as Bandhan Microfinance

which enjoy a premium position and stronghold in these markets.

o To compete against these institutions, banks need to develop a separate

model altogether on the lines of a microfinance institution to first set up their

businesses and then reaching the market with a wide array of offerings.

Conclusion

Brealey et al in their book Principles of Corporate Finance talk in depth of

decision making under risk and uncertainty. The risks could be broadly

105

classified into business risk and financial risk. A company’s business risk is

determined by how it finances its investments. Financial risk is primarily

influenced by the level of financial gearing, interest cover, operating leverage

and cash flow adequacy. According to Brealey et al., uncertainty arises from

a lack of previous experience and knowledge. Uncertainty could be attached

to following factors:

Level of capital outlay required

Level of selling prices

Level of sales volume

Level of revenue

Level of operating costs

Taxation rules

Based on these two broad parameters; we can say that businesses in India

and elsewhere inherently have to face these while aiming to grow, both

organically and inorganically.

One of the approaches would be through the ECB/FCCB route depending on

respective company’s reasons, domestic options available, costs associated

with raising funds, etc.

Consequentially, we saw that the performance of the commercial banks on

various parameters via two simple methods – median and mean. These

parameters have been set on the various numbers tabulated by the Reserve

Bank of India in their annual publication, the Handbook of Statistics on

Indian Economy 2015-16.

While the numbers say a particular story – that of the growth of the economy

on all major fronts, there would be a few factors which might require a deep-

delving for making a real change.

Also, we could do another research to provide a more in-depth analysis into

the change of the governments and their policies and the impact which it

renders on the industries and eventually on the economies.

To conclude, we can sum India’s growth story with the following –

While we have a long way to go, our story has just begun where some of the

world’s most formidable businesses are taking a serious note of. Investors are

making a beeline for investments and with GST almost on track for July

rollout, India is set to project itself as a country to invest in, make in and

serve in.

While the focus remains on making India at top-notch investment

destination, the financial sector needs to also focus on the MSME, SSI,

Agriculture and related industries’ sectors which is aptly supported by a

robust financial structure, a focused RBI and a huge market of supportive

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banks which are usually correct in their business practices, the economy

just doesn’t seem to be a bubble but a force to reckon with.

References

Books:

Strategic Financial Management by Ravi M. Kishore; Taxmann, 2nd Edition

Principles of Corporate Finance by Richard A Brealey, Stewart C Myers,

Franklin Allen, Pitabas Mohanty; Tata McGraw Hill, 10th Edition

Journals

Sonia Singh, Hiranmay Saha, Centralization of Microfinance, The IUP Journal

of Entrepreneurship Development, Vol. VIII, No. 2, 2011

Ashish Kumar Rastogi, P.K. Jain, Surendra S. Yadav, Debt Financing in India

in Public, Private and Foreign Companies, The Journal of Business

Perspective, Vol. 10 l, No. 3l July-Sept 2006

Rajlakshmi Mallik, Being Credit Rationed: Delay and Transaction Cost,

International Game Theory Review, Vol. 17, No. 2 (2015)

Jayan Jose Thomas, Explaining the ‘jobless’ growth in Indian manufacturing,

Journal of the Asia Pacific Economy, 2013; Vol. 18, No. 4, 673–692

Stephanie Caputo, Ammar Askari, Barry Wides, Commercial Lending in

Indian Country: Potential Opportunities in a Growing Market, Office of the

Comptroller of the Currency, February 2016

Richard H. Gamble, Passage to India, National Association of Credit

Management, 2003

Dr. G. Parimalarani, Performance of Commercial Banks in Priority Sector

Lending, Asia Pacific Journal of Research in Business Management, Volume

2, Issue 7 (July, 2011)

Raju, M.T., Bhutani, U. and Sahay, Anubhuti, Corporate Debt Market in

India: Key Issues and Policy Recommendations, Securities and Exchange

Board of India, Working Paper No. 9

Other Sources:

o RBI External Commercial Borrowings Monthly Data – May 2014 to July 2016

– Source: https://rbi.org.in/Scripts/ECBView.aspx

o RBI – Handbook of Statistics on Indian Economy 2015-16 – Source: https://www.rbi.org.in/SCRIPTs/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economy

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Teaching of Organizational Behavior with Dramatics

By

Pallavi Srivastava*

Assistant Professor at St. John Institute of Management and Research

Abstract

The purpose of this study was to determine the effectiveness of interactive

drama as a pedagogical way to teach the subject of Organizational Behaviour.

The management educators can benefit from the myriad usage of this

technique to teach the subject “Organizational Behavior” which is a very

important subject for all the would be managers and MBA graduates. The

paper presents a result of an experimental study where the students were

taught the subject using a different pedagogy for the mid semester exams

and the technique of interactive drama after it before the students appeared

for the end semester exams. The students of the class were divided into

random groups and were given the relevant topics to be developed into role-

plays. The results show that the students when taught by using the

interactive drama method had better understanding of the concepts and even

remembered them for a long time. A lot of students even showed an

inclination towards learning more concepts of human psychology.

Key Words:

Teaching Pedagogy, Role-play, Dramatics, Interactive drama

Introduction The purpose of this study was to determine the effectiveness of interactive

drama as a pedagogical way to teach the subject of Organizational Behaviour.

The management educators can benefit from the myriad usage of this

technique to teach the subject “Organizational Behaviour” which is a very

important subject for all the would be managers and MBA graduates. The

paper presents a result of an experimental study where the students were

taught the subject using a different pedagogy for the mid semester exams

and the technique of interactive drama after it before the students appeared

for the end semester exams. The students of the class were divided into

random groups and were given the relevant topics to be developed into role-

plays. The results show that the students when taught by using the

interactive drama method had better understanding of the concepts and even

remembered them for a long time. A lot of students even showed an

inclination towards learning more concepts of human psychology. Interactive

drama gives the students the liberty to discuss the scene they just witnessed,

replaying the scene after the suggestions given by the audience.

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Literature Review: It started with a methodical literature review on the use of drama to teach

the management subjects. Recent efforts to improve higher education have

focused on the learning process (Kolb & Kolb, 2005). Boggs, Mickel and

Holtom(2007) say that unlike traditional drama,interactive drama is a tool

that promotes participation from the audience and fosters experiential

learning. It has been used in higher education classrooms in a variety of

disciplines and organizational training workshops in numerous fields such as

business, law, health care, education, and social work. Kolb and Kolb (2005)

described traditional arts education as an experiential learning process of

demonstration that emphasizes showing and integrating theory and practice;

in contrast, traditional management education is described as a text-driven

approach that emphasizes telling and theory. Unlike a traditional

management classroom where most of the time is spent conveying

information, much of the time in an arts classroom is spent on student

expression of ideas and skills (Kolb & Kolb, 2005).

Need for the Study The subject Organizational Behaviour relies heavily on human psychology to

derive it's content and curriculum. It is one of the most important subjects

taught to the management students. The beauty of teaching management is

that it is highly dynamic and there is no problem that has a single correct

answer. No single day in a manager's life is alike. From a long time the

management educators have been using the role play technique to teach the

management subjects. The technique of interactive drama can be used as a

substitute to the role play. It helps the students by making them involved in

the happenings of the class room by being an active participant instead of

just a passive listener. The paper tries to find out the effectiveness of this

pedagogy in teaching the subject of Organizational Behaviour.

Objectives of the study

1. To study the effectiveness of the pedagogy of “Interactive Drama” to teach the subject Organizational Behaviour. 2. To understand the need of using an interactive technique of teaching for teaching a theoretical subject. Research Methodology

Project Design: It is the specification of procedures and methods for

acquiring the information needed. The methodology used for the purpose of

study is basically data collection. The data was collected from both primary

and secondary.

Data Collection Method

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Primary Data: The primary data was collected through survey method by

means of questionnaires and by interview method by interacting face to face.

Also a difference in the mean was calculated of the marks obtained by the

students in the mid semester and end semester exam in the subject of

Organizational Behaviour.

Primary data: a. Through questionnaire – Questionnaire was made and the answers were collected from a sample size of 35 students. b. Through Interview: Students were interviewed to have a better understanding of their point of view about the impact of this teaching

pedagogy on them. Data Analysis The methodology of “Interactive Drama” was used for the students of MMS-I after their Mid Semester exams. Methodology used before Mid semester

Before the mid semester exams of MMS-I students the methodology used to

teach them the subject of “Organizational Behaviour” was lecturing method.

The students were encouraged to ask doubts and read the text books for

enhanced learning and understanding of the subject. The mean of the scores

of all the students was calculated and kept for further reference.

Methodology used after Mid semester

After the mid semester exams the methodology for teaching the same subject

was changed from the regular lecture method to lecture plus interactive

drama method. The concept was first taught to the students and then a few

select students were given a topic to be made into an interactive drama

session. While this group of students converted the concept into a role-play

the other students were instructed to watch the drama and also raise their

doubts whenever they felt the topic could have been shown in a better way.

This led to a healthy discussion about the concerned topic. After using this

pedagogy for teaching the rest of the portion of the subject “Organizational

Behaviour” the mean of the scores of the students of their end semester exam

was again calculated and this was compared to the mean of the scores of the

mid semester exams. The students were also interviewed on one on one basis

to understand the effectiveness of this methodology.

And the results were as follows:

Subject

Mean of Scores w/o Interactive Drama

Mean of Scores w/o

Interactive Drama (End

Sem Exam)

Change in the

Scores (Mid Sem Exam)

OB 29.65 38 Increase of 8.35

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Apart from this a questionnaire was administered to the same batch to understand their attitude towards the subject “Organizational Behaviour” and it's teaching by the dramatics pedagogy. The responses to the different questions were: Q.1 Have you participated in any of the role plays before? Please specify. 70% of the students responded in affirmative. Q. 2 What did you feel about enacting the OB theories in the class? 95% students claimed that it was lots of learning with fun.

Q. 3 Did the entire exercise help you in understanding the subject better? 96% students answered in affirmative. Q.4 Rate the entire teaching methodology of OB through the medium of dramatics on a scale of 5. 1-- Poor 2-- Average 3-- Good 4-- Very Good 5- - Excellent 82% of students said it was excellent, 10% said very good, 4% said good and 2% remarked it as an average pedagogy. Findings:

1. The mean of the scores after using dramatics as a way of teaching increased.

2. The increase in the mean that is 8.35 is quite remarkable. 3. A huge percentage of students have admitted to liking this method of

pedagogy in the questionnaire. 4. In the one on one interview the students accepted that this

methodology helped in enhancing their learning and understanding of the subject.

5. A lot of students showed an inclination towards the subject of psychology and OB after these sessions.

Conclusion: The subject Organizational Behaviour relies heavily on other streams of arts for its content. This subject becomes very important for any management graduate as the understanding of self becomes the basis of a good management. It gives students a better understanding of themselves and also the nuances of the behavioural psychology. From the time immemorial the management educators have been searching and using various methodologies to teach this subject. This paper concludes that teaching of this subject through the way of dramatics (interactive drama) can be one of the great means of imparting the knowledge and facilitate the student's learning. The mean of the scores for the students show the effectiveness of

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this way of teaching. It can also help the students to develop a positive attitude towards this subject. References: Bhattacharjee, S. (2014). Effectiveness of Role-Playing as a Pedagogical Approach in Construction Education,50 ASC Annual International Conference Proceedings Boggs,J. , Mickel, A., Holtom, B. Experiential learning through Interactive drama: an alternative to student role plays, Journal of management education, Vol. 31 No. 6, December 2007, 832-858 Kolb, A., & Kolb, D. A. (2005). Learning styles and learning spaces: Enhancing experiential learning in higher education. Academy of Management Learning and Education, 4,193-212. Kolb, A. Y., & Kolb, D. A. (2006). Learning styles and learning spaces: A review of interdisciplinary application of experiential learning in higher education. In R. Sims and S. Sims(Eds.), Learning styles and learning: A key to meeting the accountability demands in edu-cation. Hauppauge, NY: Nova. Huffaker, J. S., & West, E. (2005). Enhancing learning in the business classroom: An adventure with improve theater techniques. Journal of Management Education, 29, 852-869

112

Leveraging Mobile CRM - On Time Food Availability

By

Siddharth Jain* Dr. Preeti Sharma**

Post Graduate student of Institute of Management Technology(IMT),

Hyderabad

** Assistant Professor (IT & Analytics), Chairperson, IT Infrastructure,

Institute of Management Technology (IMT), Hyderabad

Abstract

This paper presents an e-commerce business model based on a mobile

Food Truck Application built to provide mobile food availability over

smart devices by leveraging state of the art technology. This application

focuses on mobile Customer Relationship Management (mobile CRM)

by providing real-time information and delivery of desired food items

from a food truck. In addition, the customer can know real-time

location of the preferred food truck to plan their order. Also customer

gets notification from their favorite food truck about the daily deals and

schedule for the day. It is intended to build on Location Based Services

and Context Based Services wherein the location of the food truck in

particular vicinity and the context of instant food delivery will be of

prime importance.

Keywords:

Mobile Customer Relationship Management, mobile CRM, Food Truck,

Business model, Location Based Services, Context Based Service Introduction The capacity observed by companies in the fact that a mobile phone is

a personal object, has enabled mobile technology to enter the

business world primarily as a marketing tool (Agrebi and Jallais,

2015; Riivari,2005; San-Martín, 2016). Moreover, collaboration

technology, in the form of mobile customer relationship management

applications (mobile CRM applications), has emerged and gained

increased interest in corporate enterprises (Trainor, 2016) which

can be further extend to new start-ups for relatively less

developed concepts such as mobile food trucks.

Mobile CRM is designed to be accessed and operated via a mobile

device, such as a smartphone or tablet, and enables professionals to

not only access customer and prospect information but also update

various activities anytime, anywhere in real time (Trainor, 2016).

Earlier, mobile technology, as an emerging tool in sales force

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automation (SFA), has added great value to sales activities by

enhancing communication and providing more efficient access to

customer information (Sinisalo et al., 2015). Now this study attempts

to present a business model on delivering food by leveraging

collaborative technology of mobile CRM applications.

Proposed Business Model

This business model deals with three modules: One- food truck vendor

registration; in this vendor needs to buy a time barred subscription plan and

get access to the application through unique Id. This will provide online

market place in which vendor can list the menu items, state the price,

locality and update the quantity on real time basis. Second- customer

application; in this customer can search all the food truck nearby, also filter

can put on the basis of cuisine, price and timing of the food truck. Third-

order placement; in this customer gets the live updates on the quantity left

for a particular item, so that he/she can make a choice which food truck to

go or not.

Figure: 2 Proposed Business Model

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Mobile CRM Application for Food Truck Customer is the king: satisfaction of customer is the most important aspect

for any business to be successful. Through food truck application we are

building a platform in which all the problems of customer and food truck

vendor can be catered. Food truck application broadly includes three module

customer application, vendor application and order placement. Customer Application

Customer application is the aggregator of information related to food

truck. Customer can search for the food truck nearby within 5 Km.

Figure: 3 Customer Application Screenshot and Details

Vendor Application

In this vendor needs to buy a time barred subscription plan through which vendor can update the location, inventory of food items and receives the orders. Vendor can send customized messages to all the customers who have subscribed to favourite list. Messages related to

new schemes, new menu items, daily deals, and location schedule for the day can be send to the customers. Vendors can also prompt for next location schedule and offer private event bookings.

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Figure: 4 Vendor Application Screenshot and Details

Order Placement

In this customer gets the live updates on the quantity left for a particular

item, so that he/she can make a choice which food truck to go or not.

Figure: 5 Order Placement

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Conclusion- Through mobile CRM, the application attempts to bridge the information

gap between customer and food truck vendor. The food truck application is

providing a market place through which all food truck/mobile food stall

comes in the same platform to sell their food items. It is also helping the

customer who wants to eat from the food truck which is located in the local

vicinity. Through this application we are by passing the feeling of

discontentment of not getting your favourite food item by showing the real

time updates on the items available on the food truck. This application

provides anytime, anywhere access to food services. The idea presented

here is in the preliminary stage of developing the blue print of mobile

CRM application which is expected to be in place next year. Besides this list

of interested food truck vendor is being prepared so that application, once

ready, can be tested for different functionality.

References Agrebi, S., & Jallais, J. (2015). Explain the intention to use smartphones for mobile

shopping. Journal of Retailing and Consumer Services, 22, 16-23.

González, J., Preiss, D., & San Martín, E. (2016). Evaluando el Discurso Docente:

Desarrollo de un Modelo de Rasch a partir de Evidencia Audiovisual de

Profesores Chilenos de Primer Ciclo de Educación Básica en el Área de Lenguaje.

Revista Iberoamericana de Evaluación Educativa, 1(2).

Riivari, J. (2005). Mobile banking: A powerful new marketing and CRM tool for

f inancial services companies all over Europe. Journal of Financial Services

Marketing, 10(1), 11-20.

Sinisalo, J., Karjaluoto, H., & Saraniemi, S. (2015). Barriers to the use of mobile sales

force automation systems: a salesperson’s perspective. Journal of Systems and

Information Technology, 17(2), 121-140.3

Steidel, C. C., Strom, A. L., Pettini, M., Rudie, G. C., Reddy, N. A., &

Trainor, R. F. (2016). Reconciling the stellar and nebular spectra of high-redshift

galaxiesBased on data obtained at the WM Keck Observatory, which is operated as a

scientific partnership among the California Institute of Technology, the University of

California, and NASA, and was made possible by the generous financial support of

the WM Keck Foundation. The Astrophysical Journal, 826(2), 159.

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INNOVATIVE BUSINESS PRACTICES ON EMPLOYEE ENGAGEMENT AND EMPLOYEE SATISFACTION

By

RAVINDRA DEY

Professor and Head of Organizational Behaviour, Xavier Institute of Management and Research, Mumbai

Abstract

In the recent years organisations have been facing a challenge- the requirement to innovate continuously. This requirement puts pressure on organisations to look for new ways for being creativity and innovation in the organisation. Thus, what motivates and enables innovation in organisations have become an important question that every organisation is seeking to answer to survive in today’s competitive business world. Today’s organisations need to have innovative business practices for survival and growth.

This study was carried out to understand the relationship between innovative business practices and employee engagement and employee satisfaction.The research shows that there is a positive correlation between innovative business practices and employee engagement and employee satisfaction. The study also reveals that statistically there is no significant difference in the perception of male and female employees where it comes to Innovative Business Practices or employee engagement and employee satisfaction.

Keywords:

Innovation, Innovative Business Practices, Employee Engagement, Employee Satisfaction, Workplace

1. Introduction

The term innovation has been used to refer to two related concepts. Some researchers use the term to refer to the process of bringing new products, equipment, programmes or systems into use (Damanpour, 1991) while others have used it to refer to the object of the innovation process, that is, the new product, equipment, programme or system (Rogers,1983). Use of the term innovation has also differed in respect of whether 'objective newness' is considered an important criterion of innovation. While some researchers consider objective newness to be an important criterion, others consider an innovation to be a product, programme or system which is new to the adopting organization (e.g. Damanpour, 1991), arguing that whether an idea is objectively new matters little so far as human behaviour is concerned (Rogers, 1983). Innovation can be viewed as either a process or an outcome. In terms of business, innovation is the generation of fresh ideas, the ongoing development of products, services and processes and their commercial application.

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Engagement is about passion and commitment-the willingness to invest oneself and expand one’s discretionary effort to help the employer succeed, which is beyond just simple satisfaction with the employment arrangement or basic loyalty to the employer (Blessing White, 2008; Erickson, 2005; Macey and Schnieder ,2008). Therefore, the full engagement equation is obtained by aligning maximum job satisfaction and maximum job contribution. Stephen Young, the executive director of Towers Perrin, also distinguishes between job satisfaction and engagement contending that only engagement (not satisfaction) is the strongest predictor of organizational performance (Human Resources, 2007). Satisfaction refers to the level of fulfillment of one’s needs, wants and desire. Satisfaction depends basically upon what an individual wants from the

world, and what he gets. (Morse, 1997). Employee satisfaction is a measure of how happy workers are with their job and working environment. It is sure that there may be many factors affecting the organizational effectiveness and one of them is the employee satisfaction. Effective organizations should have a culture that encourages the employee satisfaction. (Bhatti & Qureshi, 2007). Sundaray (2011) noted that engaged employees are enthusiastic about their work and will often be fully immersed in their job resulting in creativity and innovation. Unsworth (2003) used inductive methods to investigate factors affecting engagement in the innovation process. Engaged employees would be satisfied and loyal to the organization.

1.1 Problem Statement:

In the recent years organisations have been facing a challenge- the requirement to innovate continuously. This requirement puts pressure on organisations to look for new ways for being creativity and innovation in the organisation. Thus, what motivates and enables innovation in organisations have become an important question that every organisation is seeking to answer to survive in today’s competitive business world.

1.2 Objective of the Study:

This study aims at understanding the relationship between innovative business practices on employee engagement and employee satisfaction. The objectives of the study are as follows:

To find out the relationship between innovative business practices and employee engagement.

To find out the relationship between innovative business practices and employee satisfaction.

To find out the relationship between employee engagement and employee satisfaction.

To understand the difference in perception between genders on innovative business practices.

To understand the difference in perception between genders on employee engagement.

To understand the difference in perception between genders on employee satisfaction.

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1.3 Purpose of the Study:

Today’s organisations need to have innovative business practices for survival and growth. It also possible helps in employee engagement and employee satisfaction. The purpose of this study is to understand how innovative business practices lead to employee engagement and employee satisfaction.

2. Literature review

2.1 Innovative Business Practices

An obvious question that is raised often is – why innovate? Though many organisations in the past have been able to survive even with very limited amounts of innovation, emerging trends like globalisation and outsourcing which push to improve efficiency and effectiveness have driven the innovation process. Organisations need more than good products to survive; they require innovative processes and management that can drive down costs and improve productivity. Workforce retention and need to engage them profitably in achieving organizational goals have also contributed towards the push for innovations.Innovation is important as it is one of the primary ways to differentiate an organisation from its competitors.

2.2 Employee Engagement

Many researchers have tried to identify factors leading to employee engagement and developed models to draw implications for managers. Their diagnosis aims to determine the drivers that will increase employee engagement level. According to Penna research report (2007) meaning at work has the potential to be valuable way of bringing employers and employees closer together to the benefit of both where employees experience a sense of community, the space to be themselves and the opportunity to make a contribution, they find meaning. Employees want to work in the organizations in which they find meaning at work. Penna (2007) researchers have also come up with a new model they called “Hierarchy of engagement” which resembles Maslow’s need hierarchy model. In the bottom line there are basic needs of pay and benefits. Once an employee satisfied these needs, then the employee looks to development opportunities, the possibility for promotion and then leadership style will be introduced to the mix in the model. Finally, when all the above cited lower level aspirations have been satisfied the employee looks to an alignment of value-meaning, which is displayed by a true sense of connection, a common purpose and a shared sense of meaning at work. The BlessingWhite (2006) study has found that almost two third’s (60%) of the surveyed employees want more opportunities to grow forward to remain satisfied in their jobs. Strong manager-employee relationship is a crucial ingredient in the employee engagement and retention formula.

Most drivers that are found to lead to employee engagement are non-financial in their nature. Therefore, any organization who has committed leadership can achieve the desired level of engagement with less cost of doing it. This does not mean that managers should ignore the financial aspect of their employees. In fact, performance should be linked with reward. Nevertheless, this is simply to repeat the old saying of Human Relations Movement which goes “as social being, human resource is not motivated by money alone.” As

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Buckingham and Coffman (2005) said, pay and benefits are equally important to every employee, good or bad. A company’s pay should at least be comparable to the market average. However, bringing pay and benefits package up to market levels, which is a sensible first step, will not take a company very far- they are like tickets to the ballpark, they can get the company into the game, but can’t help it win.

2.3 Employee Satisfaction

Employees are more loyal and productive when they are satisfied (Hunter &Tietyen, 1997), and these satisfied employees affect the customer satisfaction and organizational productivity, Potterfield, (1999). There is no

limit for the employees to reach the full satisfaction and it may vary from employee to employee. Sometimes they need to change their behaviours in order to execute their duties more effectively to gain greater job satisfaction(Miller, 2006). Having good relationships with the colleagues, high salary, good working conditions, training and education opportunities, career developments or any other benefits may be related with the increasing of employee satisfaction. Employee satisfaction is the terminology used to describe whether employees are happy, contended and fulfilling their desires and needs at work. Cranny, Smith & Stone (1992) defined Employee Satisfaction as the combination of affective reactions to the differential perceptions of what he/she wants to receive compared with he/she actually receives. According to Moyes, Shao & Newsome (2008) the employee satisfaction may be described as how pleased an employee is with his or her position of employment. ‘Job satisfaction is all the feelings that a given individual has about his/her job and its various aspects. Employee satisfaction is a comprehensive term that comprises job satisfaction of employees and their satisfaction overall with companies‟

policies, company environment etc’ as defined by (Spector, 1997).

Companies have to make sure that employee satisfaction is high among the workers, which is a precondition for increasing productivity, responsiveness, and quality and customer service. Human Relations perspective posits that satisfied workers are productive workers (e.g., Likert, 1961; McGregor, 1960). Thus, organizational productivity and efficiency is achieved through employee satisfaction and attention to employees‟ physical as well as socio

emotional needs. Human relations researchers further argue that employee satisfaction sentiments are best achieved through maintaining a positive social organizational environment, such as by providing autonomy, participation, and mutual trust (Likert, 1961). Employees‟ job satisfaction sentiments are important because they can determine collaborative effort. Consistent with this reasoning, Likert (1961) has argued that collaborative effort directed towards the organization‟s goals is necessary for achievement of organizational objectives, with unhappy employees failing to participate (effectively) in such efforts.

2.4 Link between Innovation and Employee Engagement:

Organizational culture and organizational commitment plays a very crucial role. The link between these two factors is that an organization’s culture

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affects the organizational commitment and performance. Organizational commitment is developed through organizational culture which is enforced through organizational practices. This simply means that organizational commitment is the outcome of organizational culture (Martins and Martins, 2003). It is the imperative of every organization to understand its own dynamic culture so that managers can capitalize on the insights generated by the cultural perspective to wield greater control over their organizations. The culture of an organization has an important impact on its performance (Naicker, 2008).

A study conducted by Drenth, Thierry and Wolff (1998) found that there is a positive relationship between a high level of organizational commitment and the two dimensions of organizational culture which are support-oriented culture and innovation-oriented culture. This means that support and innovation culture dimensions helps to develop a stronger or higher level of organizational commitment.

2.5 Link between Innovation and Employee Satisfaction:

The concept of “employees’ job satisfaction” was first put forth by Hoppock (1935) as satisfaction displayed by employees both physically and mentally with regard to the working environment. Employee satisfaction is also called job satisfaction. (Wang Song-Hong, 2005). According to Smith, Kendall and Hulin (1969), job satisfaction is the result of a worker explaining the distinctive nature of his/her job based on a particular dimension, and whether a specific work situation affects job satisfaction involves many other factors, such as the comparison of good/bad jobs, comparison with colleagues, how competent an individual is, and the previous work experiences possessed by a worker. Schneider and Zornitsky (1994) defined “employee’s job satisfaction” as an employee’s attitude or feelings toward his/her job, compared to the definition presented by Gerald and Robert (1995) that employee’s job satisfaction is the general attitude an employee holds toward his/her duties. Locke (1973) considers “employee’s job satisfaction” the pleasant/positive emotional response of a person evaluating his/her duties or work experiences. Smith et al. (1969) proposed the five dimensions of job satisfaction, namely the job itself, job promotions, salary, supervisors and co-workers.

3. Hypothesis

The hypothesis for the study is as follows: Ho1: There is no correlation between Innovative Business Practices and Employee Engagement. Ho2: There is no correlation between Innovative Business Practices and Employee Satisfaction. Ho3: There is no correlation between Employee Engagement and Employee Satisfaction.

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Ho4: There is no difference in the perception among male and female respondents for Innovative Business Practices. Ho5: There is no difference in the perception among male and female respondents for Employee Engagement. Ho6: There is no difference in the perception among male and female respondents for Employee Satisfaction.

4. Research Methodology

The objective of the study was to identify how innovative business practices

impacts employee engagement and employee satisfaction. Hence for this

purpose, a quantitative study seemed more apt as against a qualitative

study. This study solely relies on primary data collected from employees

working in different organisations across different industries. The primary

data has been collected through a structured questionnaire. It was an

objective questionnaire with no room for subjective answers.

4.1. Primary Data

The primary data was collected administering the questionnaire to 76

employees working in different organizations.

4.2. Secondary Data

The secondary data was gathered by reviewing various research papers and

articles published by different authors on the same subject.

4.3. Research Instruments

Two instruments were used for the purpose of this research, as follows;

Innovative Business Practices (To measure the level of innovative business

practices followed in the organization)

Employee Engagement (To measure the level of employee engagement and

employee satisfaction in the organization)

Innovative Business Practices

The first 16 statements of the questionnaire were related to Innovative

Business practices. The elements constituted were as follows:

i. Effective leadership and supervision (LS) ii. Opportunities for learning & advancement (LA) iii. Promotion of workplace flexibility (WF) iv. Culture of inclusion (CI) v. Meaningful work (MW) vi. Cultivation of teams and social supports (TS) vii. Competitive compensation and benefits (CB) viii. Promotion of health and wellness (HW)

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Employee Engagement and Employee Satisfaction

The next 17 statements of the questionnaire were related to Employee

Engagement. The elements constituted were as follows:

i. Alignment of efforts with strategy (S)

ii. Empowerment (E)

iii. Teamwork and Collaboration (TC)

iv. Development Plans (DP)

v. Support and recognition (SR)

The next 3 statements of the questionnaire were related to Employee

Satisfaction and Loyalty (ES).

Each statement had to be responded on a 5 point Likert scale with 1 as

Strongly Disagree, 2 as Disagree, 3 as Neutral, 4 as Agree and 5 as Strongly

Agree.

4.4. Reliability & Validity of the Study

Cronbach’s Alpha Reliability Index was used to evaluate internal consistency

of each construct. A minimum of 0.5 is considered as satisfactory level

during the early stage of any research and a score of over 0.7 is considered to

be a good level. The reliability for the sample collected for the Innovative

Business practices was found to be 0.840 and the reliability for the sample

collected for Employee Engagement and Employee Satisfaction was found to

be 0.916. This indicates that there is a high level of consistency for both the

scales. Refer to Table 1a and 1b.

4.5. Logical Analysis

Effective and efficient data analysis is the result of effective data

preparation. Data preparation involved transferring the questionnaire into an

electronic format, which permitted and enabled data processing. Microsoft

Excel was used to compile the data. This data were further used using

Statistical Program for Social Sciences (SPSS) software for further analysis

and interpretation.

5. Results and Discussion

5.1 Correlation of scales To understand the impact and the nature of relationship between the innovative business practices and employee engagement and employee satisfaction, Karl Pearson’s coefficient of correlation was calculated. (Refer Table 2d). Table 2a indicates very high correlations between innovative business practices and employee engagement. The result indicates that innovative

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business practices has a positive impact on employee engagement. Table 2a indicates a high positive correlation at 0.01 significant level therefore we reject the first null hypothesis that there is no correlation between innovative business practices and employee engagement.

Table 2b indicates very high correlations between innovative business practices and employee satisfaction. The result indicates that innovative business practices has a positive impact on employee satisfaction. Table 2b indicates a high positive correlation at 0.01 significant level therefore we reject the second null hypothesis that there is no correlation between innovative business practices and employee satisfaction.

Table 2c indicates very high correlations between employee engagement and

employee satisfaction. The result indicates that employee engagement has a positive impact on employee satisfaction. Table 2c indicates a high positive correlation at 0.01 significant level therefore we reject the third null hypothesis that there is no correlation between employee engagement and employee satisfaction.

5.2 Regression analysis Regression results for innovative business practices and employee engagement is shown in Table 3a. We see that the correlation between innovative business practices and employee engagement is .697 exactly what we see in Table 2a. This indicates a strong association between the two variables. We carried out further regression analysis that will allow us to predict values of employee engagement (variable y) values of innovative business practices (variable x). The prediction equation is Y = a + bx. Thus our prediction equation would be Y’ = 1.082 + .726X where Y is the dependent variable and x is the independent variable. So if innovative business practices score is 4 then the prediction for employee engagement would be 3.99. Regression results for innovative business practices and employee satisfaction is shown in Table 3b. We see that the correlation between innovative business practices and employee satisfaction is .786 exactly what we see in Table 2b. This indicates a strong association between the two variables. We carried out further regression analysis that will allow us to predict values of employee satisfaction (variable y) values of innovative business practices (variable x). The prediction equation is Y = a + bx. Thus our prediction equation would be Y’ = -1.366 + 1.389X where Y is the dependent variable and x is the independent variable. So if innovative business practices score is 4 then the prediction for employee satisfaction would be 4.2. Regression results for employee engagement and employee satisfaction is shown in Table 3c. We see that the correlation between employee engagement and employee satisfaction is .786 exactly what we see in Table 2b. This indicates a strong association between the two variables. We carried out further regression analysis that will allow us to predict values of employee satisfaction (variable y) values of employee engagement (variable x). The prediction equation is Y = a + bx. Thus our prediction equation would be Y’ = -1.421 + 1.377X where Y is the dependent variable and x is the

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independent variable. So if employee engagement score is 4 then the prediction for employee satisfaction would be 4.09.

5.3 Ranking of sub-scales and t-test for Innovative Business Practices

among Gender

One of the objectives of this study is to understand the difference in perception of various sub-scales of innovative business practices and employee engagement and employee satisfaction between genders and the overall score. In this sample of 76 respondents, there are 40 males and 36 females. This is done by taking the mean score of each parameter of the two variables and then ranking them accordingly.

For innovative business practices, it is interesting to see that, there are difference in the ranking of sub-scales of innovative business practices. Opportunities for learning and advancement is seen as the top priority for men, whereas female sees this as the sixth priority out of 8 sub-scales. There are differences in terms of perception among male and female respondents in terms of priorities for innovative business practices. (See Table 4a). To find out whether the difference are significant or not a t-test was carried out. The t-test between genders for Innovative business practices yields a probability of .63, and since this probability is greater than 0.5, we conclude that the variances are not statistically significantly different from one another and that t-test statistics should be based on equal variances. Further results indicates t-value of -.771, with 74 degrees of freedom and a probability of .44. As this is greater than .05, we conclude that males and females had similar mean innovative business practices scores. (Refer Table 5). Therefore we accept the fourth null hypothesis that there is no difference in the perception among male and female respondents for Innovative Business Practices.

5.4 Ranking of sub-scales and t-test for Employee Engagement among

Gender

Yet again for employee engagement, it is interesting to see that, there are difference in the ranking of sub-scales of employee engagement among male and female respondents. Teamwork and Collaboration which is seen as the top priority for female respondent is the fourth ranking for male respondent. (See Table 4b). However the differences in mean among gender is not too wide, therefore a t-test would give us the significant difference status among gender. The t-test between genders for employee engagement yields a probability of .88, and since this probability is greater than 0.5, we conclude that the variances are not statistically significantly different from one another and that t-test statistics should be based on equal variances. Further results indicates t-value of -.913, with 74 degrees of freedom and a probability of .36. As this is greater than .05, we conclude that males and females had similar mean employee engagement scores. (Refer Table 5). Therefore we accept the fifth null hypothesis that there is no difference in the perception among male and female respondents for Employee Engagement.

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5.5 Ranking of sub-scales and t-test for Employee Satisfaction among

Gender

The t-test between genders for employee satisfaction yields a probability of .027, and since this probability is less than 0.5, we conclude that the variances are statistically significantly different from one another and that t-test statistics should not be based on equal variances. Further results indicates t-value of -.624, with 59.7 degrees of freedom and a probability of .54. As this is greater than .05, we conclude that males and females had similar mean employee satisfaction scores. (Refer Table 5). Therefore we accept the sixth null hypothesis that there is no difference in the perception

among male and female respondents for Employee Satisfaction. 6. Limitation and Future Scope of Study

The various limitations to this study are:

1. A lack of time and resources limited our sample group to 76

respondents only. With increased time and resources a greater sample size

could have been drawn.

2. The sample was collected only from Mumbai and its suburbs. Sample

from other places across the nation would have given more variety and

insights to the whole study.

7. Recommendations & Conclusion

The survey conducted depicts that there is a very strong relationship between innovative business practices and employee engagement. In today’s time for survival and growth innovation and creativity is very important in organizations. The study proves that innovative business practices leads to employee engagement. The study also depicts a very strong relationship between innovative business practices and employee satisfaction thereby proving the point that innovation business practices also increases employee satisfaction.

The study also states that there is no significant difference between the perception of male and female when it comes to Innovative business practices, employee engagement nor employee satisfaction. Organization needs to give more focus on innovative business practices as organizations today’s faces lot of challenges and change and the same can be managed by innovative practices.

Engaged employees are more satisfied and thereby increasing the changes of more productivity and output and positive results. Engaged employees will be less likely to leave their jobs and less likely to remain absent. All these will result to long term sustainable results and success.

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ANNEXURES

Table 1a: Reliability of the Data – Innovative Business Practices

Cronbach's Alpha

Cronbach's Alpha Based on Standardized Items

No. of Items

0.84 0.845 16

Table 1b: Reliability of the Data – Employee Engagement & Employee

Satisfaction

Cronbach's Alpha

Cronbach's Alpha Based on Standardized Items

N of Items

0.916 0.915 20

Table 2a: Correlation of Scales

Innovative

Business Practices Employee

Engagement

Innovative

Business Practices

Pearson Correlation

1 .775**

Sig. (2-tailed) 0

N 76 76

Employee Engagement

Pearson Correlation

.775** 1

Sig. (2- tailed) 0

N 75 76

**. Correlation is significant at the 0.01 level (2-tailed).

Table 2b: Correlation of Scales

Innovative

Business Practices Employee

Satisfaction

Innovative Business Practices

Pearson Correlation

1 .786**

Sig. (2-tailed) 0

N 76 76

Employee Satisfaction

Pearson Correlation

.786** 1

Sig. (2- tailed) 0

N 75 76

**. Correlation is significant at the 0.01 level (2-tailed).

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Table 2c: Correlation of Scales

Employee

Engagement Employee

Satisfaction

Employee Engagement

Pearson Correlation 1 .730**

Sig. (2-tailed) 0

N 76 76

Employee Satisfaction

Pearson Correlation .730** 1

Sig. (2- tailed) 0

N 75 76

**. Correlation is significant at the 0.01 level (2-tailed).

Table 2d: Correlation of Sub-scales

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Table 3a: Regression Analysis – Innovative Business Practices and Employee Engagement

Table 3b: Regression Analysis – Innovative Business Practices and Employee Satisfaction

133

Table 3c: Regression Analysis –Employee Engagement and Employee Satisfaction

134

Linking Social Sustainability to Urban Poverty

By

Ritu Sinha

Assistant Professor, IES Management College and Research Centre,

Mumbai

Abstract Urban development comes with its own opportunities and challenges. The

rapid pace of urbanization has dire implications for urban poor for their sustainability in urban areas. This transition has produced an urban crisis resulting in urban poverty and urban slums, which is marked by the lack of adequate infrastructure and growth management. The issues pertaining to urban poverty are migration, labor, the role of gender, access to basic services and the appalling condition of India’s slums. This poses distinct challenges for housing, water, sanitation, health, education, social security, livelihoods and the special needs of vulnerable groups such as women, children and the aging. Hence, the issues of urban poverty needed to be addressed distinctly from those addressed in the typical analysis of poverty. The present study is aimed at understanding the problems faced by the poor and focuses on the systemic changes that are needed to address them. It also attempts to link the concept of social sustainability in addressing the issues of urban poverty by creating the physical, cultural and social places that support the community. It aims at bringing together a number of different ideas about social equity, social needs and corporate intervention in bringing social integration to create an inclusive society. Keywords: Urban Poor, Social Sustainability, Housing, Poor Infrastructure Study Background

Urban development comes with its own opportunities and challenges. It

brings benefits for urban poor by offering them a pool of unskilled jobs

and average income. This led to rural urban migration relying on the

livelihood opportunities in urban areas. But this caused income

inequalities in urban areas and is one of the reasons for the rise in

poverty in urban areas. As per the statistics released by government,

urban poverty in India is over 25 percent. Around 81 million people live in

urban areas on incomes that are below the poverty line. Although rural

poverty remains higher than urban poverty at the national level yet the

gap is closing.

135

The rapid pace of urbanization is having dire implications for these urban

poor for their sustainability in urban areas. These people are forced by

circumstance to live in the cities in most dangerous and health-

threatening environments known as urban slums. The census defines a

slum as residential areas where dwellings are unfit for human habitation

as they are dilapidated, cramped, poorly ventilated, and unclean. Nearly

one in every six urban Indian residents lives in a slum which is

significantly lower than the slum growth that had been projected for

India. Around 1.37 crore households or 17.4% of urban Indian

households lived in a slum in the year 2011 as suggested by data

released by the registrar general and census commissioner's office. The

2001 data had set India's slum population at 15% of the total population.

Slums are visual manifestations of urban poverty. According to the 2002

National Sample Survey (NSS), an estimated 8.23 million households in

urban areas of the country were living in slums. The rapidly increasing

slums have been observed in the four mega cities of Mumbai, Delhi,

Kolkata, and Chennai due to expanding employment opportunities.

However, even the tier I and tier II cities are undergoing rapid social and

economic transformation as they are also getting attention from big

businesses. Another common perception regarding the slum dwellers is

that they are poor. But a survey of nine slums in Howrah in the state of

West Bengal revealed that almost two thirds of the population living in

the slums was above the poverty line (Sengupta 1999).

Urban Poor

There is huge heterogeneity in the living standards of urban poor within a

city. There are many studies that suggest that large differences exist

among the urban poor in modes of livelihood and access to resources

(Moser, Gatehouseand Garcia 1996). Urban poverty even today accounts

for one quarter of total poverty in India, and this trend is expected to rise

in the future. It refers to those urban poor that live with many

deprivations like limited access to employment opportunities, inadequate

and insecure housing and services, violent and unhealthy environments

and limited access to adequate health and education opportunities. It is

multidimensional construct that is rooted in a complexity of resource and

136

capacity constraints, inadequate Government policies at both the central

and local level, and a lack of planning for urban growth and management.

Most of the time, urban poor are defined on the basis of a monthly

income cutoff, which is currently Rs 4,824 for a family. But now the

government is planning to estimate in terms of parameters like housing,

economic, social and occupational.

Urban poverty has its issues that needed attention distinctly from those

addressed in the typical analysis of poverty (Baker and Schuler 2004).

Predominantly, there are three distinctive characteristics along which

urban poverty and vulnerability that make it different from the rural

poverty. These characteristic are commoditization, environmental hazard,

and social fragmentation (Moser, Gatehouse,and Garcia 1996). Urban

households need to pay in cash for all their necessities and do not have

the support of production, in particular food. Commuting costs to work in

urban areas is on higher side as compare to rural areas. All these aspects

of urban life are referred to as commoditization. Environmental hazards

are also on higher side for these urban dwellers. Inadequate access to

water and sanitation, poor quality housing, and overcrowding poses

health risks for the urban poor in particular. Social fragmentation relates

to the lack of social security in urban areas as compared to rural areas.

Urban dwellers are exposed to higher levels of violence, alcohol, and drug

abuse, and greater risk of motor vehicle accidents.

Characteristic of Urban Poverty

Urban poor consists of heterogeneous groups with varied characteristics.

Some remain poor as they do not have access to employment, do not have

secure shelter and some others fall below the poverty line if their shelter

is demolished due to an eviction drive in a city. Urban poor have to pay

more for accommodation, food, transport and other services than the

rural poor. They faces multiple vulnerabilities like lack of regular income

and employment, productive assets, access to social safety nets; lack of

access to services such as education, health care, water supply and

sanitation; dignity and respect. Understanding intra urban differences

137

across various cities is also very important in light of urbanization of

poverty in developing countries (Ravallion et. al. 2007) and the growth of

slum population fuelled by migration. In India, between 1983 and 2004-

05, there has been decline in poverty (head count ratio), the total number

of rural poor has declined by 12.31 percent whereas urban poor has

increased by 13.89 percent. Also, it has been found that the mega cities

are getting attention and developmental focus whereas other cities are

been ignored owing to their size.

Issues afflicting Urban Poor

The urban poverty in India is more than 25 percent where around 81

million people live in urban areas on incomes that are below the poverty

line. India has also come up with its report on the nature and dynamics

of urban poverty in the year 2009 that is aimed to identify the problems

faced by the poor and focuses on the systemic changes that are needed to

address them. These issues pertain to migration, labour, the role of

gender, access to basic services and the appalling condition of India’s

slums. This poses distinct challenges for housing, water, sanitation,

health, education, social security, livelihoods and the special needs of

vulnerable groups such as women, children and the aging. An increasing

pace of urbanization and the absence of affordable housing have resulted

in proliferation of slums in urban India which is increasing and becoming

denser. According to a 2001 census, India’s cities have a slum population

of 42.6 million (23.7 percent of the urban population). The majority (11.2

million) of them belong to Maharashtra region and that too in Mumbai,

Dharavi and Mankurd slum. These slums are illegal urban settlements on

public land where slum dwellers reside in sub-human conditions, with

little or no access to civic amenities like clean water, sanitation and

health care facilities.

Slum dwellers face a constant threat of eviction, removal, confiscation of

goods and have virtually no social security cover. Some 54 percent of

urban slums do not have toilets; public facilities are unusable due to a

lack of maintenance. The conditions often lead to various types of anti-

social activities, create environmental problems and, more often are

havens for criminals. The problem of slums has attained alarming

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proportions and had started threatening the sustainability of urban life.

The problems and issues that are peculiar to slum dwellers are limited

access to income and employment, Inadequate and insecure living

conditions, poor infrastructure and services, vulnerability to risks such as

natural disasters, environmental hazards and health risks with focus on

people living in slums, Inequality closely linked to problems of exclusion,

improving quality of life, struggle for recognition and helping to reduce

insecurity

General Framework of Action

Addressing urban poverty is not only the onus of central and local

governments, but also a responsibility of society, organizations, business,

and local communities themselves. It requires support from higher levels

of government, provision of public services, assistance for small-scale

enterprises with the help of private public partnership and corporate

social responsibility of the firms. Corporate can look for the inclusive

business models whereby companies can consider long-term values that

can be created for society and shareholders. The Impact Assessments

commissioned by DFID India in 1997 (IAS, 1999; PIAS, 1997) suggested

that poor urban people consider employment, assets and savings, and

income as the key determinants of their well-being. This in turn is linked

with security and predictability of income, as well as to the security of

assets. So, there is need of poverty alleviation programs that aimed at

increasing the facilities for education, training and increasing earning

avenues for urban poor. In addition to the government role, PPP model

can also play an important and significant role in this aspect. Corporate

houses should adopt rural areas and urban poverty areas to empower the

people at these places. It requires a huge outlay of funds and budgetary

provision for development of basic infrastructure.

Social Sustainability

Social sustainability refers to the life-enhancing condition within

communities, and a process within communities that can achieve access

to key services like health, education, transport, housing and recreation.

It combines the design of the physical realm with design of the social

139

world i.e. infrastructure to support social and cultural life, social

amenities, systems for citizen engagement and space for people and

places to evolve’ (Woodcraft et al, 2011 p. 16). Sachs (1999) defined ‘social

sustainability’ in terms of number of constituent elements including

social homogeneity, equitable incomes and access to goods, services and

employment. He also emphasized on the importance of ‘cultural

sustainability’ which requires balancing externally imposed change with

continuity and development. Godschalk (2004) defined social

sustainability in terms of urban planning tripartite consisting of

‘resource’, ‘development’ and ‘property’ conflicts. Chiu (2002, 2003)

explored social sustainability in the context of housing in Hong Kong. She

identified three components of social sustainability based on

conceptualisations of social limits, ecological limits and equality.

Today no business can survive without assessing the impact of it is

activities on the society in general. People are reluctant to turn a blind

eye to socially insensitive acts of the businesses. Companies are shifting

their focus from shareholder value (i.e. maximizing profit) to stakeholder

value and are striving to balance among people, planet and profit. The

societal expectations pressure on companies is making them to act

responsible with regards to their external as well as internal

environments (Du, Bhattacharya & Sen., 2010; Issaksson & Jørgensen,

2010; Waller & Conaway, 2011). Within this context, the objective of this

paper is to reflect on various interventions that needed to be undertaken

to mitigate the complex problem of urban poverty through various

approaches of social sustainability.

Findings

Urban poverty is a complex process and is multi-dimensional

phenomenon which makes it difficult to define and analyze it. Urban

poverty presents a different set of issues which are different from general

poverty analysis. There are distinctive groups of the urban poor like

pavement dwellers, people and others are nearly invisible. There are

either homeless or somewhere to be found between homelessness and a

stable residence in a slum. The construction sector is mostly

140

characterized by mobile poor, unskilled construction workers who have to

search for the work continuously. These workers work on a short term

basis, daily or weekly. Before moving to another site, or any other job

location, there is never enough time or even the possibility to get settled.

They don’t have rationed food and remain malnourished. These workers

live in tent like structures and lack any access to infrastructure. Many

seasonal migrants spent their seasons in big cities under horrendous

conditions.

Urban poor always remain in a fear of destitution and homelessness and

hence there is a need to get involved the urban poor in the process of

urban development. There should be measures to protect them from risks

like ill-health, eviction, loss of employment along with need safety nets.

The other important aspect is the security associating with income,

tenure, access to consumption and investment savings and loans,

educational opportunities which are an investment for the future, and

strong social networks to support families in times of crisis. For women, it

also includes the protection against violence and discrimination. All these

measures can help the urban poor to improve their quality of life.

Urban poor can be empowered by imparting skill training programs that

offer them a better employment prospects in the future. Even the

government has recognized the need of public-private partnership and

corporate social responsibility to achieve the objective of providing

affordable home to the urban poor. The government has earmarked Rs

35,000 crores to provide affordable housing and for slum development in

the 12th Plan. Hence its analysis requires additional tools and techniques

for the analysis of urban poverty and how corporates can contribute

towards the empowerment of urban poor. For this, a city poverty profile is

needed so that it can help policy makers, community members,

academics, corporate and government to offer them social sustainability.

Corporates Interventions

Many Indian companies have been taking proactive initiatives to become

a part of socially responsible companies. These corporates are running

their programs in areas like education, community health, and

sustainable livelihood development and building human capabilities,

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community engagement, women empowerment and protecting

environment. Even the employees of these companies volunteer

themselves for making a meaningful difference in the lives of urban poor.

Some firms are involved in providing clean drinking water, repair existing

water resources and manage the new pipelines to transport water to help

the community. Large scale cleanliness drives are being organized by

these firms in the slum areas to address the deteriorating sanitation

conditions. Some of the companies are working towards the concept of

recycling that not only offers benefits beyond the environmental benefits

but also added business opportunity.

Most of the time, these urban poor are victim of poor health and lack of

hygiene awareness and quality education, early marriages of girls,

unemployment and lack of women empowerment. Companies can engage

themselves in community interaction and work towards these issues that

are plaguing the community. They can involve Self Help Groups (SHGs)

for getting in touch with this community. Some of the notable works can

be observed from the live examples of the corporates undertaking the

activities for empowering the economically marginalized social group

especially urban poor. Axis Bank Foundation runs Balwadi which are

learning places for children living in large slum clusters. It also conducts

Skill Development Programs in motor driving, welding, mobile repairing,

tailoring etc. for the youth. Hindalco Industries awards scholarships for

the poor students. Infosys Science Foundation supports causes in

healthcare and culture.

KC Mahindra Education Trust supports education of over 75,000 under

privileged girls. It provides vocational training and livelihood training to

the youth from socially and economically disadvantage community.

HUDCO has extended the support to the local bodies for construction of

night shelter facilities in Bhubaneswar, Vadodara and West Bengal. It

has extended support for construction of community pay and use toilets

at Delhi, Tamil Nadu and Bengal. Apart from this, it has also taken up

Skill Development Training Programs at various urban locations. Aptech

Ltd. in association with leading NGOs sponsored computers and the

education to the underprivileged children at the schools of urban slums.

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They also undertook the task of conducted training and awareness-camps

for such students. Education is a top corporate priority for Cisco and

pursues a philosophy of strong “triple bottom line” which is described as

profits, people and presence. The company promotes a culture of

charitable giving and connects employees to non profit organizations

serving the communities.

Policy Implications

The dynamics of urban inequalities are leading to urban poverty. The

qualitative aspect of urban poverty makes it different from its rural

counterpart, and therefore may require very different policy interventions.

It requires critical attention of the policymakers; otherwise this

phenomenon would results in inequality and insecurity that might strain

the city life. Social sustainability can ensure the sustenance of the diverse

social relations that exist in healthy communities. Creating the physical,

cultural and social places that support wellbeing and a sense of

community will help the urban poor to move away from poverty traps. It

aims at bringing together a number of different ideas about social equity,

social needs and to promote sustainable development, and draw upon

social capital, social cohesion and wellbeing in urban areas as a means of

explicating these ideas.

There is a need for the strategy development for providing quality of life

and creating competitive cities. It also calls for a better appreciation for

the complexities of these social dimensions which are fundamental to the

success of the sustainable development movement. These strategies

might relate to City Development Strategies (CDS) where we can identify

key urban issues through quantitative measures of urban poverty, and

qualitative measures of community priorities. It can also be valuable

inputs to the Local Economic Development (LED) where local government,

the private sector, the not- for-profit sectors and the local community got

an opportunity to work together to improve the local economy so as to

ensure inclusive growth. It can set the road map for the requirements for

the changes in policies, investments and activities that can be formulated

for empowering urban poor. The policy makers should look for the

143

development of social, political and legal structures which are inclusive

and provide opportunities for all people.

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145

THE FUTURE LIES IN INNOVATIVE GOVERNANCE

By

Dr.Shailja Badra* Vivek Sharma**

* Assistant Professor at Durgadevi Saraf Institute of Management Studies

** Assistant Professor at Sheila Raheja Business School, Bandra

Abstract

The last two years have seen a major thrust of Central and State

Governments on e-governance. Traditional administrative practices have

superannuated. As the country takes a pivotal role in world stage, the

contrast between India and Bharat is visible. The scourge of poverty and

population made governance challenging for able administrators too.

Independent India adopted best practices in Governance from different

countries of the world. It helped to serve vast cultural and geographical

diversity of Indian people for almost seven decades. The globalization and

liberalization of Indian economy in 1991 saw a new thrust in governance.

Technology is the single big contributor to transforming India. The

country has been quick to adopt new learning in governance and pave

way for a new generation. The Central government has tried to create a

social, economic and technological infrastructure that shall pave way for

better governance and less paper work in the foreseeable future.. E-

governance goes beyond mindset issues. This paper attempts to

understand e-governance and its impact on efficiency and cutting costs.

KEYWORDS:

E-Governance, optimal utilization of resources

I. Introduction

The spectrum of e-governance initiatives across various states in the

country is the reflection of the political to embrace change.The examples

are many and varied. The Chief Minister of Maharashtra takes the

technology route to govern. It makes his administration more responsive

and efficient. The government of Madhya Pradesh uses a geometrics

application, i-GeoApproach to monitor construction and maintenance of

100000 kilometers of road.The island city of Mumbai uses its Facebook

146

page where citizens report traffic congestion. Haryana uses a

management information system to track child birth. Bihar Police has a

web portal to see the status of complaints.

The national e-governance plan initially had 14 of 27 projects like e-

passport and national citizen database. Various state governments

provide services such as telemedicine, high-quality and cost-effective

video and data connectivity. Governancerequires addressing issues of

public-private partnership, water supply, waste disposal, power

distribution, telecommunications network and industrial development.

Logistic hubs, special economic zones for IT and ITES, amusement parks,

sports complex are integral to holistic governance.E-governance requires

process simplification and the greater co-ordination among multiple

departments. It is common knowledge that projects with longer gestation

period and uncertain demand are not easy to get financers. Ease of

governance eliminates fly–by-night operators.

In modern times, it is easier to know about title of land, environmental

issues, infrastructure available socio-political back check and

development and planning regulations.Poorland record maintenance led

to sale of land to multiple buyers resulting in mental anguish and

financial loss to the affected people. It hampered the development of the

area, forced industries to reconsider alternative locations. However, a lot

needs to be done on computerization and regular update of land title data

to make it transparent and efficient.

Road, rail and air connectivity has a bearing on development of any

region. E-governance bring technology savvy international citizens closer

to fruitful business lines. The Government of Gujarat converted vast

areas of barren land useful for cultivation by monitoring the flow of water

to parched regions. New Delhi has a Smart city embedded in the heart of

the Capital. Karnataka and Andhra Pradesh have shown the rest of India

that giant stridescan be made in governance if there is the right

leadership .Organizations and industries are lining up in these states in

areas of defence production, logistics, IT and many more. Developed

nations make a beeline to have their pie, after getting fully convinced on

good governance and strong public policy is well in place.

147

India witnessed a change in Central government in May 2014. Many

states elected governments which promised e-governance and sensible

utilization of scarce resources.

A flagship scheme on financial inclusion called “Jan Dhan Yojana”

became a talking point in governing India the modern way. It added

21million account holders throughout the country. Fertilizer subsidy,

educational scholarship, social service initiatives are linked to the

scheme. It reduced pilferage and embezzlement of funds. It also ensured

that the beneficiaries get maximum advantage with optimal utilization of

resources. However, during 50 days of demonetization, there have been

reports suggesting misuse of many of these accounts. But stricter laws

would mean that the government tracks those who misused the accounts

of the less priveledged.

E-governance takes centre stage in areas where development issues

tackled poorly in the past. E-governance augurs well for underdeveloped

regions, societies that remained outside the benefits of development, the

less privileged and also special interest groups.

Oil companies believe in e-auction, housing development boards use

technology to become transparent. The bidders, based anywhere in the

world, come together as technology cuts across geographical boundaries.

The applications of e-governance permeate many sectors & change the

history and geography of the region.

Global financial, commercial and entertainment hubs are the

transforming element in governance. Special economic zones with single

window clearances, expressways and information highways are part of big

development agenda followed by each government.

E-district pilot projects have been implemented in Karnataka, Andhra

Pradesh, UP to improve efficiency through complete automated system.

Online pension distribution and scholarships, procurement and

distribution are facilitated by use of technology in governance.

Banks and financial institutions have taken a cue to implement e-

governance. ICICI dedicated a digital village recently to the cause. RBI

and NABARD extensively use technology to govern better. Multinational

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and private banks have focused on better implementation of user friendly

technologies.

II. Literature Review

It is well established that big decisions of foreign collaborations,

partnering growth and investments are based on technology of the

country, wisdom, experiences and human resources. E-governance takes

centre stage in such a situation, ripe with brilliant possibilities.

In the view of World Bank, e-governance is the use of information

technology to transform relations with citizens, business and other arms

of government. The use of these technologies results in better delivery of

government services to citizens.

The National e-Governance Plan (NeGP) comprised of 27 Mission Mode

Projects(MMPs) and 10 components came into force on May 18, 2006. It

aimed at the providing access to services, focusing on service delivery

while ensuring efficiency, transparency and reliability at affordable cost.

The strategy included common support infrastructure, decentralized

implementation, public-private partnership and ownership of Central

ministries. Bharat Nirman, Rural Employment Guarantee Schemes used

e-governance techniques since inception of these initiatives.

The Bhoomi venture in Karnataka, a G2B module, aims at computerized

land record, which in turn makes the middleman irrelevant.

The Ministry of Civil Aviation followed a G2B module in the selection of

financial advisors in its Mumbai and New Delhi privatization project. The

Ministry of Railways follows G2G module for postings to make e-

governance work. Its G2B module helps bidders to check their status

online.

The Ministry of Finance adopted G2G e-governance model to make

transfers/ posting more transparent in Department of Income Tax. Many

departments have followed suit. (The Times of India, December 27, 2014)

The state of Uttar Pradesh uses 17500 Common Service Centres to

provide services like birth /death certificates, domicile, caste, income

among many utilities. Digitization of ration cards, e-villages, e-suvidha for

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G2C and G2B usher in better efficiency. Global IT giants like HP help 13

rural incubation centres to encourage entrepreneurship and generate

employability among rural youth in UP (The Times of India Advertorial,

March 4, 2015)

III. Problem Statement

The focus on Governance is priority for welfare of the people. Technology

is the lever which provides efficiency and speed in mass outreach

initiatives. It helps to set the following objectives.

IV. Objectives

4.1 To study e-governance as a catalyst in providing socio economic

development of people.

4.2 To evaluate the impact of recent initiatives on governance.

V. Hypothesis

5.1 E-governance is one of the potent contributing factor for the development

of India.

VI. Methodology

Tools: Qualitative as well as quantitative method of data collection was

used. Analysis was done by Questionnaire method and the opinion of 8

experts was also used to conclude the paper.

Sample size: 155 Respondents

Sampling Method: Simple Random sampling

Sampling Place: Mumbai

VII. Findings

7.1 The respondents feel that India is ready for e-governance. The areas

where e-governance is most helpful are utility services, municipal

documents, general administration, land and revenue matters and

pension/medical services to senior citizens and the poor.

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7.2 E-governance makes life simpler for the ordinary Indian. Greater

transparency in administration helps to build trust and stronger bond

between people and government.

7.3 Increased efficiency was highest rated among the factors in e-governance.

Respondents kept cost cutting, time saving and curb on corruption as the

other reasons for implementing e-governance.

7.4 The four key areas of e- governance were agricultural and land revenue

records, public-private partnership (PPP), transport /communication and

public utility services.

7.5 Technology is a big enabler in governance. It helps to serve people better

through greater access to information. Respondents felt that simplified

dissemination of important information is critical to governance. Thus,

the hypothesis e-governance is one of the potent contributing factor for

the development of India holds true.

7.6 The respondents felt that Gujarat is ahead of all other states in e-

governance. Maharashtra followed by Karnataka were rated higher than

other states which have accepted e-governance as the way forward.

VIII. Conclusions

The view of experts on e-governance too is that it provides better services.

Empowering people is a bye product of providing greater access to

information at the click of a button. It helps people participation in

government and opens new avenues for citizen dialogue. In turn, it

strengthens the social fabric.A strong view emerged that e-governance

impacts quality of life, Simplicity of operation helps in enhancing

efficiency. The expanded reach in governance helps in more responsive

and clinical execution of policies.

Governance is challenging in the vast diversity of cultures, languages and

ethnicity of India. The results indicate that greater co-ordination and

integration of policy initiatives, happens in e-governance. There is

roleclarity and evolution of one’s responsibility. Fixing the problem in

such situations becomes relatively easier.Greater citizen access to public

information, create efficiency in the long run. The multiplier effect on

efficiency makes the initial cost of installing system, procedures and

process insignificant. Developed countries and ASEAN nations have long

practiced this model and reaped sizable benefits. Another expert view was

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that managing voluminous data in governance becomes mandatory as all

elements of the population need to be covered. The role of the

administrator expands. The pursuit of excellence in governance takes an

exponential upswing with accountability in the fore of every action.

IX. Suggestions

Governments and organization should walk the talk with commitment

toward simplified systems and procedures, transparency and efficiency. It

is a constant dialogue with people beneficiaries which cements

partnerships. In a large Indian population with a myriad of procedures

and laws, e-governance infrastructure and architecture has to be on solid

foundation. Funding should precede proper planning. Course correction,

if required, requires seamless processes and without administrative

delays. The different PESTEL environments should not be treated as

mutually exclusive; rather they could enhance performance by

complementing each other.

X. References

[1] Kotler, Philip (2013), Marketing Management, Pearson Publication, 13

Edition, Page 68-69

[2] Saxena, Rajan, Marketing Management, Tata McGraw-Hill, 4th

Edition, Page 59-68

[3] Fernando, A.C, Business Ethics, Pearson Education,Page144-146

[4] Baines, Paul, Sinha Piyush, Marketing Asian Edition, Oxford

University Press, 2013, Page 38-45

[5] National e-Governance Plan 2006, Report of Department of

Electronics and Information Technology.

[6] Malhotra, N& Dash, S (2011), Marketing Research, Pearson

Publication, 6th Edition, Page 27-28